A Walk to Profitability with Skechers

A little over four months ago (in August 2014), I wrote a piece on Skechers USA Inc. (NYSE:SKX) in a post titled, “14 New Highs Makes Skechers Calls Smart”.  Skechers with its market capitalization of $3.13B designs and markets Skechers-branded lifestyle footwear for men, women and children, and performance footwear for men and women under several lines. In addition to Skechers-branded lines, the Company also offers a branded junior line.

In that piece, I talked about Skechers’ exceptional financial performance, its healthy balance sheet, diversification across its portfolio of brands and the excellent bullish momentum of the stock. I then recommended buying the SKX Jan 2015 50.000 call (SKX150117C00050000) at an asking price of $8.

Performance After Four Months

When I wrote that piece on Skechers in August, the company had a market capitalization of $2.78B and its stock was trading around $55.17 per share while the Jan 2015 50 call options that I recommended was trading at an asking price of $8.

As at 11:06 AM EST today, Skechers had a market capitalization of $3.13B. The stock was trading around $60.28 per share having gained 1.58% and the Jan 2015 50 call options had an asking price of $11.00. In essence, Skechers had gained 12.58% in its market capitalization. The share price has increased 9.26% in four months. As expected, the call options has increased by an impressive 37.5% within those four months. It needs no further mentioning that this is the best chance to sell –to-close that Jan 2015 50 call.

New Coverage on Skechers

If you are new to the Skechers walk to profitability, I have outlined two good reasons I consider the stock a great buy for call options.

Impressive International Growth

In December 2014, Skechers announced the opening of its 1,000th store as part of efforts to cement its global reach across 6 continents and more than 75 countries. Skechers has more than 500 stores in international markets and it opened 32 new international locations in the third quarter. It might interest you to know that the first Skechers retail store was opened about 20 years ago and the company has recorded impressive milestones within that period.

Interestingly, international sales is an important revenue driver for Skechers as the company reported in Q3 2014 that its total  distributor business overseas grew by more than 87% year-over-year. Growth from China in the third quarter and European subsidiaries recorded a 72% increase in sales within the same period.

Excellent Financial Performance

The quality of Skechers’ financials is another great reason to be optimistic about the company. Skechers has consistently beaten the consensus expectations in the last three quarters and the third quarter results did not disappoint. In Q3 2014, Skechers reported net sales of $674.3M in comparison to $515.8M from Q3 2013 and gross profit represented 45.2% of sales compared to 44.7% of sales from the comparable period in 2013.

The most impressive part of the financials is the earnings from operations, which came in at $74.1M compared to $44.0M from Q3 2013. Net Earnings came in at $51.1M compared to net earnings of $26.8M in Q3 2013.

How to Trade SKX Options

From the foregoing, Skechers is doing everything right and there is enough good news around the stock to justify continued investor bullishness. I strongly believe that Skechers still has much room to soar if it continues to innovate along its product lines such that its appeal as a lifestyle brand for comfort footwear for the whole family remains intact.

I am optimistic about the prospects of Skechers and I recommend buying SKX calls. The SKX Apr 2015 60.000 call (SKX150417C00060000) looks attractive at an asking price of $5.50.

— Daily Option Alerts

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