3 Reasons Why Skechers Stock Is Getting Pounded on Friday

By Stocks Fool.com

Image source: The Motley Fool.

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Shares of Skechers (NYSE: SKX)hit a new 52-week low in Thursday's after-hours trading after the country's second-largest footwear brand posted weaker-than-expected financial results. Skechers also issued brutal guidance, nipping any chance at a near-term turnaround in the battered stock.

Skechers stock was soaring high a year ago. Things were going so well that it had to execute a 3-for-1 stock split with its stock trading in the low $90s. The shares have now surrendered more than a third of their value over the past year. Let's go over the reasons why the market didn't appreciate Thursday afternoon's financial performance.

 

1. Skechers couldn't live up to its own targets

 

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Skechers was calling for $950 million to $975 million innet salesfor the third quarter. It ultimately clocked in at $942.4 million. One can argue that a 10.1% increase on the top line isn't too shabby, especially after the mere 9.6% year-over-year advancelast time out. However, this was a company that was growing at a roughly 27% clip in each of the previous three quarters.

At the end of the day, Skechers failed to live up to even the low end of its guidance. That's a problem, and it typically suggests that things started to fall apart later in the quarter.

Skechers also failed to impress on the bottom line. It checked in with a profit of $0.42 a share, less than the $0.43 a share it posted a year earlier. Skechers is blaming fluctuating currencies for wiping $0.04 a share out of its bottom line results, but let's not assume that the asterisk makes this a period of adjusted growth. The profit of $0.43 a share it posted a year earlier was held back by $0.13 a share in one-time expenses.

 

2. Domestic wholesale was supposed to improve, but it didn't

 

Image source: Skechers.

Skechers dismissed the 5.4% slide in its domestic wholesale business during the second quarter, blaming the dip on the shift in the Easter holiday that had pushed sales into the first quarter. Things should've been better this time around with an apples-to-apples calendar comparison, but it didn't play out that way.

Skechers' domestic wholesale business posted another year-over-year decline in yesterday's report. Stateside wholesale revenue slipped 3.4%. The backpedalling footwear maker explains that the number of shoes shipped actually increased 0.6%, but that only means that it was generating 4% less on every pair of shoes it sold at the wholesale level.

This is obviously not what investors like to see in sizing up a company's near-term prospects. The footwear market is already a cutthroat business, and if Skechers is cutting prices, it's gong to sting margins.

 

3. Guidance was lousy

 

The fourth quarter has been a seasonally sleepy period for Skechers, but investors weren't ready for guidance to be as weak as what they heard in Thursday's report. Skechers is targeting $710 million to $735 million in net sales, which at the midpoint is less than the $726.6 million it delivered during last year's fourth quarter.

Skechers was bragging about the third quarter being its second-biggest showing in net sales during its 24-year history. Unfortunately, the midpoint of its guidance for the current quarter would make it the worst quarterly showing in two years. This would also be the first time in more than four years that it delivers a year-over-year decline on the top line.

Skechers had a lot to prove going into the report, and it fell short in nearly every single way.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Skechers. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.