Skechers USA (SKX) reported first quarter results yesterday afternoon, with both earnings per share (EPS) and revenue coming in slightly above analysts’ estimates. Revenue reached record levels in 2017, and again in the first quarter of 2018. U.S. sales increased 8.5%, and international wholesale sales increased 17.9 percent with a 30% sales increase in China. Global comparable store sales increased 9.5%. Skechers currently has very strong third and fourth quarter backlogs. (First and third quarters are Skechers’ traditionally strong quarters.)
The company repurchased $3 million of stock during the quarter, with $147 million remaining in the repurchase authorization.
Skechers lowered their revenue and profit forecast for the second quarter, due to a shift in timing of shipments into the third quarter, and problems in the company’s Middle East region that are expected to be resolved later in the second quarter. Skechers is not experiencing product problems. Consensus estimates projected $0.54 EPS in the second quarter, while the company now expects EPS within a range of $0.38 to $0.43.
As a result of the lowered second quarter expectations, the stock is down 29% this morning at 30. At least five investment firms lowered their price targets on SKX today, to a range of 34 to 45.
The stock has clearly had an overreaction to the weak second quarter prognosis. SKX will probably settle down and trade in the 32-35 area for a while before recovering from today’s fall. Patient investors could certainly take advantage of the current lower price and add to positions.
Skechers is still an undervalued aggressive growth stock with extremely low debt levels, and the company is experiencing strong global growth and record results. In hindsight, a slow second quarter (during a traditionally slow point in its annual cycle) will be an inconsequential memory. However, it’s obviously a big deal today for shareholders.
I encourage investors to hold SKX, and consider adding to positions today. If you are intent on selling, you will very likely get a better price early next week, because there are no fundamental problems at the company that warrant today’s exaggerated drop in the share price. Strong Buy.