Racing to Profitability With Skechers

It is a beautiful Friday afternoon and I think we can start the weekend with the options of a lifestyle footwear maker. Enter Skechers USA Inc. (NYSE:SKX) – Skechers with its market capitalization of $3.97B 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.

I last wrote about trading Skechers on January 12 in a post tiled, “A Walk to Profitability with Skechers”. In that post, I talked about Skechers’ impressive international growth and its excellent financial performance. I then recommended buying the SKX Apr 2015 60.000 call (SKX150417C00060000) attractive at an asking price of $5.50.

Fast-Forward to 3 Months

The SKX April 60 calls that I recommended were already in the money as early as February 12 (one month after initial coverage) when the share price of Skechers crossed the $66 mark.

When I wrote that January piece, the shares of Skechers were trading at $59.95 and the options contract had an asking price of $5.50. As at market close yesterday, the shares of Skechers have made a new 52-week high of $86.49. The stock has made another 52-week new high to $90 in today’ session to mark a 50.12% increase in three months. In fact, the shares of Skechers gained a massive 12.97% in yesterday’s session.

Why Did Skechers Soar Yesterday?

The main reason behind the stellar performance of Skechers yesterday can be traced to the Q1 2015 earnings that the company reported on Wednesday.

Skechers reported first quarter EPS of $1.10 to beat the consensus analyst estimate of $1.01

The company reported revenue $768M to beat the consensus analyst estimate of $703.37M and to mark a 40.5% year-over-year improvement

Skechers reported that operating income increased to $88.2M or 11.5% of its net sales up from $48.2M or 8.8% of net sales in 2014. More so, the company’s gross profit increased by 38.3% to $332.5M

All of Skechers’ reporting segments are up in gains as revenue in Domestic Wholesale Business increased by 38.2% and revenue in International Wholesale Business climbed 59.5%

The growth in the international growth segment echoes my sentiment from January that the opening of Skechers 1000th store in December 2014 will further cement the global reach of the company across 6 continents and 75 countries. Skechers’ international sales currently represent 37% if its total sales and management is optimistic that international sales will contribute as much as 50% within the next four years.

Skechers has beaten estimates in three of the last four quarters with an average positive surprise of 22.52%. Analysts expect Skechers to deliver earnings of $0.99 in the second quarter to mark a 45% year-over-year increase and the recent performance suggest that Skechers will beat earnings again.

How to Trade SKX Options

SKX Chart

The chart above shows how the shares of Skechers have traded within the last six months. You will observe that the stock traded in the range from November through February before it had a breakout above the $60 resistance to establish a $67.5 support.

The second blue arrow (top right corner) shows how the stock has had another breakout above the $74 resistance. Hence, we can expect Skechers to establish a new support level around the new highs. I am optimistic about the prospects of Skechers and I recommend buying the SKX Oct 2015 90.000 call (SKX151016C00090000) at an asking price of $7.93.

— Daily Option Alerts

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