Skechers USA Inc (NYSE:SKX), a brand best known for quality footwear for men, women, and children, has seen a stock turnaround since its launch into the performance footwear industry. Recently being named sports footwear brand of the year, and with a share-price increase of 442% from 2012, the company has recovered from the mistakes of years past and looks forward to the future with its performance division.
Product clean up
In 2011, Skechers USA Inc (NYSE:SKX) saw a declining share price and a dim future for its newly launched performance shoe line. Attempting to enter the sports-footwear category and expand its brand to fashion and sportswear, Skechers USA Inc (NYSE:SKX) launched a new toning shoe for the running industry. The company claimed that this shoe “increases muscle activity and energy consumption over standard fitness shoes.” However, with fitness studies proving otherwise, claims of false advertising let to a $50 million dollar settlement with the FTC, and losses from excess inventory exceeded $21.0 million.
Although NIKE, Inc. (NYSE:NKE)has traditionally dominated the footwear industry, with Nike Flyknit catering specifically to the running community, Sketchers is launching rival products with its Skechers performance division. The company’s launch into performance running shoes has included the GOWalk, GOrun, GOGolf, and Skechers USA Inc (NYSE:SKX) On-The-Go. These lines have performed well in retail stores and continue to grow in popularity within the running community.
NIKE, Inc. (NYSE:NKE)‘s revenue grew 9% to $6.2 billion for the last quarter as inventory increased by $3.3 billion. Nike saw revenue from the Nike brand rise 10% and its gross margin increase 30 basis points to 44.2%. Nike continues operational efficiency with cost-cutting measures and the shedding of unprofitable brands such as Umbro and Cole Haan. NIKE, Inc. (NYSE:NKE) continues to invest heavily in footwear lines such as NIKE, Jordan, Converse and Hurley, which will add growth in domestic markets as itsbrand popularity continues to grow.
The international market
With Asia-Pacific being at the forefront of the emerging middle class, footwear companies are scrambling to be at the front of this global emerging market. Currently around 150 million people are in the Chinese middle class with growth estimates of 1 billion by 2030. With the middle-class market in China becoming increasingly aware of the health benefits associated with exercise, this market is growing the most rapidly when it comes to footwear sales.
Due to higher disposable incomes, health awareness and trendy shoe designs, shoe makers Adidas (NASDAQOTH:ADDYY) and Nike are currently leading international markets hungry for athletic shoes. Currently, Adidas holds 11.2% of international market share, gaining ground on Nike, which currently holds 20% of all global footwear sales.
Adidas Group (which also includes Reebok, Rockport, and TaylorMade-Adidas Golf brands) reported a decline in sales of 2% to € 3.7 billion in the first quarter of 2013 from € 3.8 billion in 2012. Weakened demand for shoes, especially in other Asian markets, was the primary reason for declining revenue of 4% in the Japanese market. Reebok continued the losses for the quarter largely due to a discontinued NFL contract and issues with products in Reebok India. Wholesale revenue for Adidas declined for the quarter by 3% due to a double-digit decline in Reebok sales.
However, Skechers USA Inc (NYSE:SKX) continues to increase global expansion with a 12.2% rise in comparable sales in domestic and international Skechers stores. Focusing on the growth of its performance shoe line and expansion into emerging markets has led to an increase in net sales of 28.6% to $451.6 million.
Sponsorship exposure and brand awareness
With a recently signed deal as a multi-year footwear and apparel sponsor of the Houston Marathon, Skechers is focusing efforts to increase brand awareness within its performance division.
With added media presence and endorsements from professional athletes, Skechers USA Inc (NYSE:SKX) is increasing brand awareness for the Skechers GO platform. With exposure in the professional athletic world, Sketchers is adding top-line growth while growing its brand name in the athletic arena.
The bottom line
While Sketchers still has room to grow in the international market, its focus on performance shoes and continued sports sponsorship deals will lead to long-term growth. Compared to Adidas and Nike, which are more mature companies, the future looks bright for this shoe retailer. With a focus on international growth and a P/E ratio of 58.4, Skechers USA Inc (NYSE:SKX) has recovered from past mistakes and continues to create trendy sports shoes in a world obsessed with fitness.
The article Skechers Is a Bargain.. Buy It! originally appeared on Fool.com and is written by Kaitlyn Tokay.
Kaitlyn Tokay has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Kaitlyn is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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