In every industry dominated by a small number of giants, there's an opportunity to seek a niche audience and create a strong business.

Skechers (NYSE:SKX) has been carving out such a niche, offering quality products that resonate with the idea of being uncool to be cool. The company proudly noted in its most recent quarterly report that its "chunky fashion footwear" had been seen on runways in New York and European fashion centers. 

The company is an outsider making its way to the top, and it just might be a good bet for a powerhouse athletic company to put in your portfolio.

A person tying a running shoe outside as the sun rises

Image source: Getty Images.

Why Skechers is a great company

"Skechers is firing on all cylinders," said CEO Robert Greenberg in the company's third-quarter press release. It opened 14 company-owned stores and 171 stores with partners in the quarter, and the company sells over 3,000 products including shoes, casual apparel, athletic apparel, and accessories that range from hats and bags to sunglasses and watches.  With a presence in 170 international markets, effective digital capabilities, and a strong direct-to-consumer business, all of the company's metrics showed high growth in the third quarter of 2019.

Metric Skechers Q3 2019 Change (YOY) 

Revenue

$1.35 billion 15.1%
Gross margin 48.2% 0.3 pp
Earnings per share $0.67 15.5%

Data source: Skechers. YOY = year-over-year. pp = percentage point.

In the third quarter, revenue increased 6.7% domestically but had even greater growth internationally, at 21.9%. International sales made up 59% of sales. Direct-to-consumer sales increased 22.3%.

These are some of the reasons Skechers keep on growing:

  • With a huge product assortment, including a recent move into apparel, the merchandise range appeals to lots of types of customers.
  • Skechers products are seen as being cool yet affordable, so style mavens gravitate toward the brand, but so do consumers looking for value.
  • The products are made with a strong focus on comfort and are developed with advanced technical specifications to meet the needs of athletes and sports enthusiasts. 
  • It has built key partnerships with designer brands including Opening Ceremony in the U.S. and Atmos in Japan for exclusively designed shoes.
  • It keeps up with changing sales methods and opportunities, with digital strategies and a global reach.

How it's faring against the competition

Skechers may be kind of like the offbeat little brother, but it's quickly rising on the athletic shoe and apparel scene. Consider its performance in the most recent quarter compared to how athletic titan Nike and up-and-comer lululemon athletica, which operates in the athleisure market, did.

Company

Revenue
(most recent quarter)

Change (YOY)

EPS

Change (YOY)

Nike

$10.3 billion 10% $0.70 31%

Lululemon

$916.1 million

23%

$0.96

35%

Skechers

$1.35 billion

15.1%

$0.67

15.5%

Data sources: Nike, Lululemon, and Skechers quarterly reports. YOY = year-over-year.

And look at their stocks' year-to-date performance.

LULU Chart

LULU data by YCharts

These are all winners. Nike is a steady champion and its global expansion and keen focus on direct-to-consumer sales will help it increase revenue. Lululemon is seeing rapid growth in sales and share price, but it's priced very high relative to its earnings, with a price-to-earnings ratio of 52. It's a great company that has churned out revenue above expectations, but Skechers has higher sales and greater global reach. What's more for investors, the consumer discretionary company's stock price, even though it almost doubled this year, is at a P/E ratio of less than 20.

The future

Skechers continues to expand and pick up awards for its distinctive and quality products, signaling that this company still has a lot of room to grow.

The company's expecting to see increased sales and EPS as it digs deeper into its niche as a value brand, as opposed to most of its top competitors, which identify as status brands. Meanwhile, the company's strong international growth gives it a leg up as companies shift into a global marketplace, and Skechers should deliver increased sales.