Why Shares of Sketchers USA Inc. Tumbled 30% in October

By Fool.com

What: Shares of Sketchers collapsed in October, falling by 30.2%, according toS&P Capital IQdata, after the footwear company missed analyst expectations for revenue when it reported its third-quarter results.

So what: In absolute terms, Sketchers' third-quarter numbers looked great. The company reported quarterly revenue of $856.2 million, up 27% year over year. The domestic wholesale business grew by 11.8%, the international wholesale business grew by 52.9%, and the global retail business grew by 20.9%, with comparable-store sales growth of 10.4%.

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Despite these seemingly impressive results, analysts expected quite a bit more. Sketchers fell short of analyst estimates for revenue by about $20 million, and the stock tanked as a result. On the earnings front, the company reported GAAP EPS of $0.43, up 30% year over year.

Now what: Sketchers didn't provide specific guidance, but the company did say during the conference call that it was comfortable with the current consensus analyst estimates for the fourth quarter. On average, analysts expect year-over-year revenue growth of 22.7% in the fourth quarter.

The reaction to Sketchers' revenue miss was extreme during October, but the stock has run up quite a bit during the past few years. Between the beginning of 2013 and August of this year, when the stock reached its 52-week high, shares of Sketchers rose more than 700%. Even after the decline in October, the stock is still up more than 400% in that time.

SKX data by YCharts.

Sketchers' valuation at its 52-week high had significant growth baked in. The stock traded at about 3.5 times 2014 sales, and 60 times 2014 GAAP earnings at its peak in August of this year. When valuations get that high, anything short of perfection can send a stock tumbling. That seems to be exactly what happened with Sketchers in October.

The article Why Shares of Sketchers USA Inc. Tumbled 30% in October originally appeared on Fool.com.

Timothy Green 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.

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