Footwear company Skechers (NYSE:SKX) announced better-than-expected revenue in Q3 CY2024, with sales up 15.9% year on year to $2.35 billion. On the other hand, next quarter’s revenue guidance of $2.19 billion was less impressive, coming in 1.2% below analysts’ estimates. Its GAAP profit of $1.26 per share was also 9.1% above analysts’ consensus estimates.

Is now the time to buy Skechers? Find out in our full research report.

Company Overview

Synonymous with "dad shoe", Skechers (NYSE:SKX) is a footwear company renowned for its comfortable, stylish, and affordable shoes for all ages.

Footwear

Before the advent of the internet, styles changed, but consumers mainly bought shoes by visiting local brick-and-mortar shoe, department, and specialty stores. Today, not only do styles change more frequently as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some footwear companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Skechers’s sales grew at a tepid 11.8% compounded annual growth rate over the last five years. This shows it failed to expand in any major way, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Skechers’s recent history shows its demand slowed as its annualized revenue growth of 9.9% over the last two years is below its five-year trend.

Skechers also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 10.4% year-on-year growth. Because this number aligns with its normal revenue growth, we can see Skechers’s foreign exchange rates have been steady.

This quarter, Skechers reported year-on-year revenue growth of 15.9%, and its $2.35 billion of revenue exceeded Wall Street’s estimates by 1.8%. Management is currently guiding for a 11.7% year-on-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates the market believes its newer products and services will not lead to better top-line performance yet.

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Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Skechers has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.9%, subpar for a consumer discretionary business.

Key Takeaways from Skechers’s Q3 Results

We enjoyed seeing Skechers exceed analysts’ constant currency revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. The company also raised its full year revenue and EPS guidance, both of which came in above expectations. Overall, this was a solid quarter with many positives. The stock traded up 8.5% to $66.90 immediately after reporting.

So should you invest in Skechers right now?We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.