Skechers (NYSE:SKX) shareholders are kicking up their heels after the company reported strong third-quarter results.

Sure, expectations were low for the quarter. The shoe company had all kinds of problems coming into 2009. Sales were weak, profit was nonexistent, and inventories were bloated. Despite that bleak picture, management assured investors that profit would arrive in the second half of the year.

And arrive it did. Skechers earned $0.52 per share, which was down from $0.60 in the year-ago quarter, but $0.17 ahead of the consensus estimate. Moreover, its third-quarter sales were $405.4 million, essentially flat with the year-ago period.

While its EPS beat received most of the attention, the company's improved balance sheet was another reason for investor enthusiasm. Skechers has $276 million in cash, or $5.86 per share, and just $16 million in long-term debt. Inventories were also much improved at $192 million. That's $58 million below the year-ago period, when Skechers' inventories were growing rapidly. The company's healthy financial position and lean inventories help position it for more profitable growth heading into 2010.

However, there was one item that may be a cause for concern. Skechers' operating expenses increased from 36.6% of sales in the second quarter of 2008 to 37.4% in the third quarter of 2009. The increase stemmed from higher wages, 29 additional retail stores, and initiatives in Chile, Brazil, Hong Kong, and China.

The real question for investors is how much of this good news is already reflected in Skechers' stock price; shares now trade at 22 times earnings estimates for 2010. Compare that to more reasonably priced peers with similar growth profiles:


Return (YTD)

Forward P/E

5-Year EPS Growth













Timberland (NYSE:TBL)




Wolverine World Wide (NYSE:WWW)




Source: as of Oct. 23.

To justify its P/E multiple, Skechers will need to deliver even better results in the future. So it looks like the prudent course would be to hang tight to shares for the moment.

Further Foolishness:

Fool contributor Rob Plaza has been rockin' his Skechers since '03, but he does not own shares in any of the companies mentioned in this article. Under Armour is a recommendation of both Motley Fool Hidden Gems and Motley Fool Rule Breakers, and the Fool owns shares of it. The Fool has a disclosure policy.