Skechers USA Inc. shares soared 17% Friday as analysts weighed in on the casual shoe company’s better-than-expected fourth-quarter profit in earnings released late Thursday.
Skechers SKX, +15.20% posted per-share earnings of 31 cents, ahead of the 23 cents FactSet consensus. Revenue was a little light at $1.08 billion, compared with the $1.10 billion consensus. But the company offered upbeat guidance for the first quarter with an EPS range of 70 cents to 75 cents, ahead of the 63 cents consensus. The company is expecting first-quarter revenue of $1.28 billion to $1.30 billion, compared with a consensus of $1.34 billion.
Chief Executive Robert Greenberg said the company spent 2018 reviewing its U.S. and international businesses to seek out the best growth opportunities.
“We also focused on growing our online business around the world—improving the functionality of our e-commerce sites in the United States and China, and launching an e-commerce platform in India, while also increasing our global retail footprint, ending 2018 with 2,998 Skechers Company-owned and third party-owned stores,” he said in the news release.
Susquehanna raised its price target to $32 from $24, equal to 15% above its current level, but stuck with a neutral rating.
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“The much better than expected 4Q18 results and 1Q19 guidance driven by expense and inventory control and targeted pricing actions were very impressive, but we wonder if such controls are fleeting,” analyst Sam Poser wrote in a note.
The company beat per-share earnings estimates by 8 cents, thanks to inventory control, expense control and targeted pricing actions, he wrote. Sales, general and administrative costs were 90 basis points below expectations, driving a similar increase in gross margin.
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“It appears as if the decision not to chase every last sale and reduce promotional activity allowed the selling expenses to decrease by 3.2% in dollars and leverage by 86bps,” Poser wrote.
Other positives he highlighted were the transition from a joint venture model to a subsidiary model in India and Mexico, which he said would give the company more control of its brand. And while the company did not provide details, its business model changes will likely boost revenue growth and margins in both countries.
Poser raised his 2019 and 2020 EPS estimates, reduced his revenue estimates, but raised gross margin and lowered SG&A estimates.
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“We are hopeful, but not yet convinced, that SKX management has begun to realize, as LULU, +0.67% Deckers Outdoor Corp. DECK, +0.25% VF Corp. VFC, -0.30% likely Canada Goose GOOS, +3.04% and others have, that LESS is MORE,’ he wrote.
At Wedbush, analyst Christopher Svezia also stuck with a neutral rating “given still soft U.S. wholesale trends (missed estimates by ~5% and outlook remains mixed) and cautiousness over whether moderating operating expenses are a function of slowing sales growth (less variable cost in places like China) or real expense discipline.”
Svezia raised his estimates and lifted his stock price target to $31 from $29.
“Still, there needs to be some tangible signs that U.S. wholesale sales can accelerate, which in our view are currently being hampered by market share challenges and retail consolidation,” he wrote in a note.
Stifel’s Jim Duffy said gross margin expansion capacity and signs of more modest SG&A growth “suggest operating margins can inflect positive in 2019.” Duffy reiterated a buy rating on the stock and raised his price target to $35 from $32.
“While results are likely to remain choppy from quarter-to-quarter, we are emboldened in our expectation for margin expansion capacity and HSD-LDD (high single digit to low double digit) topline growth run rate,” Duffy wrote in a note.
Monness Crespi Hardt analyst Jim Chartier also stuck with a buy rating on the stock and raised his price target to $35 from $32. Chartier welcomed the company’s efforts to chase more profitable sales growth. Other highlights included investments in e-commerce with plans for a new site in the U.S. and other countries, he wrote in a note.
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Shares have fallen 16% in the last 12 months, while the S&P 500 SPX, +0.07% has gained 4.2%.