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1 Reason to Think Skechers' 35% Stock Surge Is for Real

By Nicholas Rossolillo - Apr 27, 2021 at 7:53AM

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The company anticipates not just a recovery, but record sales in 2021.

Investors have been anticipating a booming economic recovery in 2021 as the adverse effects of the pandemic slowly ease. Companies have been as well. Skechers (SKX -1.86%), for one, is indicating that rapid recovery is nigh.

The shoemaker returned to double-digit percentage sales growth during the first quarter of 2021 as it lapped the initial effects from the pandemic this time a year ago. But more importantly, it's what it anticipates for the rest of this year that makes the stock price's 35%-plus surge through the first four months of 2021 look legit.

An important change in forward-looking statements

Skechers posted a 15% and 101% year-over-year increase in sales and net income in Q1 2021 to $1.43 billion and $98.6 million, respectively. Not only was this a return to strong growth, this was a record for quarterly sales. Revenue was also 12% higher than Q1 2019, a year before the pandemic started.

A Skechers store in a city in China.

Image source: Skechers.

What makes this especially impressive is that some of the small shoe company's biggest markets (some states in the U.S. and several European countries) were still restricting social interactions during the first few months of 2021. Clearly, Skechers has learned how to thrive in a new digital economy in the wake of COVID-19. Nike isn't the only sneaker biz garnering attention from young consumers shopping online.

But here's the one reason the more than 35% jump in Skechers stock price could have legs: full-year 2021 guidance. For those longtime Skechers shareholders, you'll notice this is a departure from how management has been providing an outlook in the past. Prior to this, Skechers would only give an outlook for the current quarter, and the short-term updates only spaced three months at a time have caused some fits over the years. Skechers has been expanding overseas, but expansion costs money. And a highly variable quarter-to-quarter bottom line not in sync with sales growth has created some extreme stock price volatility.

SKX Chart

Data by YCharts.

This year will be different, though. Skechers management said it expects revenue for full-year 2021 to be $5.8 billion to $5.9 billion. That's at least a 26% increase over the depressed 2020 numbers (affected by COVID-19) and at least 11% over the 2019 haul (before COVID-19 was a thing). Skechers is back in growth mode, and the longer-term look into where management sees the business headed should help iron out some bumps in the road along the way.

One really cheap stock

In addition to the sales rebound, the bottom line will also see a rapid recovery. Full-year estimates are for earnings per share to be $1.80 to $2.00 -- up nearly 200% from 2020. It's still shy of the earnings per share record from 2019 ($2.25 per share), but bear in mind the company is still factoring for some pandemic disruption in its assumptions.

Plus, this is a growth company. Skechers is building out new distribution and online sales capabilities in emerging markets (like a large new distribution center in China that will begin fully operating this summer). Eventually, this expansion will pay off. For now, remember that two-thirds of Skechers revenue comes from overseas and that international business grew at a 20% clip in Q1.

Given these factors, Skechers stock looks like a pretty great value right now, even after its fast rally through the first four months of 2021. Shares currently trade for 27 times expected 2021 earnings per share -- not bad for a company generating double-digit percentage sales growth. This remains one of my favorite apparel stocks for the year ahead as the global consumer makes a comeback in the wake of the pandemic.

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