Skechers U.S.A Is A Good Fit For Your Growth Portfolio Skechers U.S.A (NYSE: SKX) reported what we can only call a "wow" quarter. The Q1 results are an example of everything we like about a growth stock and include sequential growth, YOY growth, record-high revenue, profitability, margin expansion, favorable outlook, and cautious guidance

Skechers Reports A "Wow" Quarter

Skechers U.S.A (NYSE: SKX) reported what we can only call a "wow" quarter. The Q1 results are an example of everything we like about a growth stock and include sequential growth, YOY growth, record-high revenue, profitability, margin expansion, favorable outlook, and cautious guidance. Given the fact that shares are up 10% in premarket action, it looks like the market agrees with us. The question now is whether this stock is still a buy and it certainly looks to us like it is. Based on what we're already seeing in the analyst's community, this stock could easily rise another 15% or more and we are leaning toward more.

Morgan Stanley is the most notable sell-sider to comment on the stock post-earnings release. The analysts there gave the stock a double-bump to Overweight from Neutral citing many of the same qualities we favor. In their view, this stock should be trading closer to the $56 range and that is not the highest price target among the analysts.

"SKX reported impressive 1Q21 results. It also delivered on all of the items we were looking for to upgrade the stock: improved EBIT flow-through, P&L visibility, & a more balanced mgmt. compensation structure," advises analyst Kimberly Greenberger of Morgan Stanley.

Skechers U.S.A., Inc Blows Past Consensus, Gives Cautious Guidance

Skechers U.S.A had a blowout quarter with weakness in only one area, domestic wholesale, and that due to the timing of shipments. Other than that, all the metrics are positive and points to accelerating business in the 2nd half of the year. The $1.43 billion in net consolidated revenue is up 15.3% from last year, 8$ sequentially, and beat the consensus by 600 basis points. The strength was driven by a combination of factors including International Wholesale (up 24%, triple digits in China), Direct to Consumer (up 18%), Domestic sales (up 8.5%), and eCommerce (up triple digits globally, +143% domestically).

Moving down to the margins, the gross margin improved 350 basis points to 47.6% and outpaced the consensus by 120 basis points. The gains were driven by higher prices across all outlets coupled with mix and helped to drive a 250% increase in operating income. Moving down to the bottom line, GAAP earnings of $0.63 are up from $0.32 last year which is arguably an easy comp but still a near 100% improvement. The adjusted earnings of $0.68 beat by $0.19 and grew 106%.

Looking forward the company is expecting revenue for the full year in a range between $5.8 and $5.9 billion. This is well above the $5.56 consensus and cautious for one obvious reason. The FY guidance is merely the annualization of Q1 results and assumes no acceleration of business. If quarterly revenue accelerates even by $0.05 billion more than expected revenue will beat by nearly 200 basis points. If the reopening is as strong as we believe it will be revenue could accelerate sequentially into the end of the year.

The momentum in our direct-to-consumer business along with continuing demand for our comfort product, leads us to believe that Skechers' remains on a positive trajectory," said David Weinberg, COO.

The Technical Outlook: Skechers Goes Ballistic, Buy On Price Weakness

Shares of Skechers are up 10% in early premarket trading and look like they will easily move higher. The caution for investors is that price action will make quite a significant gap at the open and will likely retrace at least a little before moving higher. Assuming there is a retracement, we'd be interested at any level between $45 and $50 that support begins to show itself.

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