According to data compiled by the U.S. Census Bureau, apparel was one of the hardest hit industries by the COVID-19 pandemic. Average sales fell over 26% in the U.S., and a similar story can be told elsewhere around the globe. Shoe company Skechers (SKX -4.59%) wasn't exempt from the pain.
However, the shoemaker and retailer is rebounding quickly and is a top play on global economic recovery. Here are three reasons why.
1. Skechers performance is back to even with a year ago
Skechers sales took a massive hit at the onset of the economic lockdown last spring, falling 42% from 2019 levels. However, like some of its peers in the apparel and footwear space, Skechers has been building out a global e-commerce presence to reach consumers directly. That paid off in grand fashion and has been growing by triple-digit percentages ever since Q2 2020 -- including a 143% increase during the final months of the year.
Paired with gradual recovery of retail in general, Skechers sales were nearly back to even with where they were in 2019 during the busy holiday shopping season. Q4 revenue was down just 0.5% year over year to $1.32 billion. As a result, Skechers' full-year 2020 revenue was down only 12% to $4.60 billion, and the company managed to eke out a net profit of $98.6 million during the year. Not bad for one of the worst crises the shoe company has ever faced.
2. A top global shoe name
One of the reasons for Skechers' quick rally is its reliance on international sales -- especially in key emerging markets like China where the shoemaker is a top-of-mind style brand. In fact, some two-thirds of sales come from overseas now.
Many of these markets were back in growth mode during the fourth quarter. Sales in China were up 30% from a year ago as the Skechers name gains momentum with young people. The company also reported double-digit percentage increases in Latin America and Europe, specifically calling out positive traction in Chile, the U.K., Germany, and Spain.
This is impressive considering Skechers said some 10% of its company-owned retail stores remained closed at the end of 2020, with many more operating on restricted hours due to health concerns. As the economy continues to rebound from COVID-19, Skechers is poised to return to growth.
3. A value as 2020's results are lapped
The company's financials are due to make a dramatic rally in the coming quarters. Management isn't providing any outlook due to ongoing disruption from the pandemic, but bear in mind that the international nature of the Skechers brand means it experienced disruption early on in the pandemic. Starting in the first quarter of 2021, it will begin lapping pandemic-affected sales results in Asia and Europe, and there should be a more pronounced effect on sales in North America during the second quarter.
Revenue in Q1 and Q2 2020 was $1.24 billion and $730 million respectively. If extrapolating out revenue from the fourth quarter of 2020 ($1.32 billion), Skechers will be back in growth mode soon. Bear in mind that the first half of the year includes what is historically a busy season for the shoe company (the Easter holiday is a big one for the apparel industry). Put another way, don't be surprised to see revenue start notching positive traction in Q1 2021.
More importantly, though, Skechers will be lapping a period in which profitability was non-existent at the onset of the economic lockdown. Shares trade for 58 times trailing 12-month earnings as of this writing, but that figure will improve dramatically from the steep losses the company reported in 2020. Given this situation, I think Skechers is a value stock -- one that is due for a rally as the global consumer recovers on a year-over-year basis. Still profitable and growing fast in important economies like China, Skechers remains one of my top global retail rebound stocks for 2021.