The Oxen Group Initiates Coverage on Skechers at Hold, FV Estimate at $28.50

Profile: Skechers USA Inc., founded in 1992, is a footwear retail company that designs, develops, and distributes their own shoes under the Skechers brand name. The company offers shoes in the casual, athletic, slip-on, fashion, and working line. The company distributes its shoes to department stores, specialty stores, boutiques, and other retailers. Additionally, the company operates ninety concept stores, 92 factory outlet stores, and 37 warehouse outlet stores. The company has international presence in Asia and Europe. The company is headquartered in Manhattan Beach, CA.

Thesis

With its recent success of the Shape-Up toning shoes, Skechers USA Inc. (SKX) has reentered the footwear picture as a company that has some potential. The company is set to have its best FY in 2010 among the wildly popular shoes that are supposed to help individuals lose weight while they walk. The shoes are designed with a sole that is curved that makes standing and walking more strenuous than a normal flat sole. With how busy Americans are, the line has become wildly popular as an alternative to exercise or an auxiliary to a work out routine.

In one year, the stock has increased, to date, 30% and as much as 160% in the 52-week period. The reason behind the success is Skechers is about to have its best FY to date. The company is projected to earn just over $2 billion while in 2009 the company earned $1.4 billion in revenue. Yet with all this success, the long term potential of the company comes into question.

For one, are the Shape-Ups or toning shoe category a long term option. Speculation that the actual ability of the shoes was not quite up to the marketing that toning shoes companies have been releasing has recently been confirmed. NPR did a report on the shoes and pointed out that two studies done by the American Council on Exercise have both proved that the toning shoes add no additional benefit of a regular shoe. If the shoes lose legitimacy in their claim to actually be more beneficial than a regular shoe, Skechers would definitely lose a key angle that is acting to its advantage. One positive point on the shoes is that the American Podiatric Medical Association has commented that the shoes have significant value and are great for the health of the foot.