NYSE:SKX
Jiaqi (Tommy) Jiang, Mengxi (Vivian) Wang, Le Huong Hoang,
Ziqi (Kay) Mai
December 3rd, 2015
1
Team Introduction
Jiaqi Jiang
Mengxi Wang
Investment Manager
Masters of Finance
Investment Manager
B.S. in Finance and
Accountancy
Le Huong
Hoang
Ziqi Mai
Investment Manager
Masters of Finance
Investment Manager
Masters of Finance
Agenda
Screening procedure & Company Overview
Macroeconomic Overview
Financial Analysis
Comparable Companies
Financial Projections
Valuation
Recommendation
3
Screening Procedure
Primarily listed
in major
exchanges
Gross
margin>30%
Interest
Coverage
Ratio>5
P/E<20
Annual
Leveraged Free
Cash Flow
growth>10%
Industry
Diversification
Annual Total
Revenue growth
>20%
Net Income
growth>10%
Skechers
We narrowed down to SKX stock through the above screening criteria
Capital IQ
Company Overview
Introduction
About the business
•
•
•
•
Key Operating Risks
•
Ability to remain competitive among
sellers of footwear for consumers,
including in the highly competitive
performance footwear market;
•
SKX Relies on independent contract
manufacturers and, as a result, are
exposed to potential disruptions in
product supply;
•
International economic, political and
market conditions including the
uncertainty of sustained recovery in
our European markets;
•
The loss of any significant
customers, decreased demand by
industry retailers and the
cancellation of order commitments.
Incorporated in California in 1992 and
reincorporated in Delaware in 1999
Design and market lifestyle fashionable
footwear for men, women and children
and performance footwear
4 reportable segments: domestic
wholesale, international wholesale,
retail and E-commerce
Shoes sold to over 160 countries with
increasing international footprint
We based our projection based on the key operating risks of the 4 reportable segments
SKX 2014 10K pg. 2-5
Company Overview
Product Lines
Products
Lifestyle
brands
Performance
brands
Skechers
USA
Skechers
GOrun
Active and
Sport Active
Skechers
GOwalk
Skechers
Sport
Skechers
Gobionic
BOBS
Skechers
GOtrain
Skechers
Kids
Skechers
Work
Skechers
GOgolf
Women’s GO, Woman’s USA, Women’s Active, Men’s USA and Men’s Sport divisions are key
growth drivers
SKX 2014 10K pg. 2-5
Company Overview
Skechers in News

Jim Cramer’s talk with COO and CFO David
Weinberg
“We are feeling pretty good, and we think we have
great opportunity both in this quarter, in the first
quarter of next year, and still think we can double
the business in the next five years," Weinberg
said.

The 2014 Korean Craze: Skecher’s D’Lites
Sketchers D’lites Golden Panda series, boasting to be
versatile, comfortable, and best of all a secret boost
of height. When the sneakers first launched in Korea,
they created a craze with queues and pre-orders.
Korean craze usually hit soon in Hong Kong and then
the Asian market overall.
Management is optimistic about the business and the shoe style is favored by customers
General news
Company Overview
Distribution Channels
There are 4 distribution channels for Skechers
SKX 2014 10K pg. 9-15
Company Overview
Segmental and Geographical Sales
2012-2014 Annual Sales by
Distribution Channels(in $)
2014 GEOGRAPHICAL SALES
United States
1200000
Canada
Other international
1000000
800000
31%
600000
400000
4%
200000
65%
0
Domestic
wholesale
International
wholesale
2012
2013
Retail
E-commerce
2014
The segmental sales are increasing year over year; the primary sales-driven market is the
USA
SKX 2014 10K Note 13
Company Overview
Store count
RETAIL STORES COUNT
Domestic store
International store
87
54
INTERNATIONAL
WHOLESALE
TOTAL DISTRIBUTORS
AND LICENSEES COUNT
118
133
600
69
388
400
300
300
492
500
362
321
377
377
278
27%
40%
200
100
0
2012
2012
2013
2014
2013
2014
2015(9/30) 2015(12/31
E)
SKX has covered most of the domestic market by
2015/9/30 and will open 15-17 stores in the last
quarter
International wholesale segment is growing
consistently and it will continue to expand
international footprint
The growth of the number of stores for retail and international wholesale segments is
promising
SKX 2013,2014 10K and 2015 10Q
Company Overview
SWOT Analysis
>Weakness
- Copying designs, not very fashionablelooking
>Strengths
- Brand name
-No own production, depends on suppliers
from Asia
- Skecher D’Lite
- Cost advantage: allow price to be low
- Size advantage: large firm, sales efficiency
SWOT
Analysis
>Opportunities
>Threats
- Expanding international footprint in
- Intensifying competition (too many firms
produce similar products)
emerging markets
- Customer tastes change fast
- Acquisitions and e-commerce
- Uncertainty in future revenue growth
Investment Team
Industry Overview
Porter’s Five Forces
Threat of New
Entrants
*Medium to
High
Rivalry
*High
Investment Team
Threat of
Substitutes
*Low
Buyer’s
Bargaining Power
Supplier’s
Bargaining Power
*Medium
*Medium
Macroeconomic Overview
Gross Domestic Product
GDP Growth Rate
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2014
2015
U.S.
2016
World
2017
Asia
2018
2019
South Korea
The GDP growth rate in the U.S. and the world will increase until 2018 then decrease
slightly in 2019
IBISWorld
Industry Overview
Shoe Store
Footwear store annual sale
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
40000
35000
30000
25000
20000
15000
10000
5000
0
Demand peaks in 2018 and decreases slightly afterward
IBIS World
Industry Overview
Online Shoe
Even though online shoe revenue growth rate declines, its expected annual growth from
2014-2019 is still high at 7.7%
IBIS World
Macroeconomic Overview
Rubber Price
Price of rubber is forecasted to have annual growth rate of -5.9% during 2015-2020 period
IBIS World
Financial Analysis
Profitability
Gross Margin
Return on Equity
20.00%
17.16%
45.00%
13.13%
15.00%
44.05%
44.58%
45.29%
45.30%
44.00%
43.00%
10.00%
42.00%
5.77%
5.00%
41.00%
40.00%
1.05%
39.12%
39.00%
0.00%
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
-5.00%
46.00%
38.00%
37.00%
-7.34%
36.00%
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
-10.00%
Net Income Margin
Return on Assets
14.00%
11.20%
12.00%
9.00%
10.00%
6.00%
3.99%
4.00%
0.72%
2.00%
8.00%
5.82%
2.96%
4.00%
2.00%
0.61%
0.00%
0.00%
-4.00%
8.33%
6.00%
8.00%
-2.00%
10.00%
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
-5.22%
-6.00%
-8.00%
Source: SKX 10-K & 10-Q reports and Capital IQ
-2.00%
-4.00%
-6.00%
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
-4.18%
Financial Analysis
Turnover and Management
Total Asset Turnover
1.80x
3.30x
1.55x
1.60x
1.40x
Inventory Turnover
1.25x
1.35x
1.35x
3.20x
3.14x
3.10x
3.10x
1.20x
1.20x
2.95x
3.00x
1.00x
2.90x
0.80x
2.79x
2.80x
0.60x
0.40x
2.70x
0.20x
2.60x
0.00x
2.50x
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Account Receivable Turnover
12.00x
Account Payable Turnover
4.50x
4.00x
9.58x
10.00x
8.00x
3.22x
7.30x
8.04x
8.44x
4.11x
4.11x
3.71x
4.27x
3.50x
3.50x
7.28x
3.00x
2.50x
6.00x
2.00x
4.00x
1.50x
1.00x
2.00x
0.50x
0.00x
0.00x
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Source: SKX 10-K & 10-Q reports and Capital IQ
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Financial Analysis
Liquidity and Solvency
Current Ratio
3.50x
3.00x
3.21x
Quick Ratio
3.27x
2.50x
2.92x
2.87x
2.54x
2.14x
2.06x
2.00x
1.50x
1.50x
1.00x
1.95x
1.64x
2.50x
2.00x
2.12x
1.00x
0.50x
0.50x
0.00x
0.00x
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
Interest Coverage Ratio
36.12x
40.00x
30.00x
16.73x
20.00x
7.87x
10.00x
1.68x
0.00x
-10.00x
-20.00x
Source: SKX 10-K & 10-Q reports and Capital IQ
Dec-31-11 Dec-31-12 Dec-31-13 Dec-31-14 Sep-30-15
-10.97x
Financial Analysis
Dupont Analysis
Tax Burden
90.48%
100.00%
72.52%71.58%
66.67%
80.00%
60.00%
51.53%
40.00%
20.00%
0.00%
160%
140%
120%
100%
80%
60%
40%
Interest
151.10
%
Burden
15%
Operating Margin
12.62
%
8.76%
10%
5.05%
87.82% 91.54%92.15%
5%
1.42%
0%
47.09%
-5%
-5.37%
-10%
Asset Turnover
180%
160%
140%
120%
100%
80%
60%
40%
20%
Leverage(Assets/Equity)
1.55x
1.25x
1.20x
1.35x
1.35x
2.00x
1.80x
1.60x
1.40x
1.20x
1.00x
0.80x
0.60x
0.40x
0.20x
0.00x
1.47x
1.52x
1.52x
1.54x
1.53x
ROE
20%
13.84%
15%
10%
6.07%
5%
1.10%
0%
-5%
-10%
Source: SKX 10-K & 10-Q reports and Capital IQ
17.16%
-7.67%
Financial Analysis
Greenblatt Analysis
EBIT/EV
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Dec-31-13
Dec-31-14
Sep-30-15
Skechers, Inc.
Wolverine World Wide Inc.
DSW Inc.
Deckers Outdoor Corp.
Genesco Inc.
Under Armour, Inc.
Steven Madden, Ltd.
Finish Line Inc.
Columbia Sportswear Company
Caleres, Inc.
Source: SKX 10-K & 10-Q reports and Capital IQ
Financial Analysis
Greenblatt Analysis
EBIT/Tangible Asset
18.00%
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
Dec-31-13
Dec-31-14
Sep-30-15
Skechers, Inc.
Wolverine World Wide Inc.
DSW Inc.
Deckers Outdoor Corp.
Genesco Inc.
Under Armour, Inc.
Steven Madden, Ltd.
Finish Line Inc.
Columbia Sportswear Company
Caleres, Inc.
Source: SKX 10-K & 10-Q reports and Capital IQ
Comparable Companies
Descriptions
Competitors
Description
Wolverine
World
Wide, Inc.
•
Wolverine World Wide, Inc. designs, manufactures, sources, markets,
licenses, and distributes footwear, apparel, and accessories. The
company operates through Lifestyle Group, Performance Group, and
Heritage Group segments.
DSW Inc.
•
DSW Inc., offers dresses, casual and athletic footwear, and accessories
under various brands for women, men, and kids.
Deckers
Outdoor
•
Deckers Outdoor Corporation offers luxurious comfort footwear,
handbags, apparel, home, and cold weather accessories.
Genesco
Inc.
•
Genesco Inc. engages in the retail and wholesale of footwear, apparel,
and accessories.
Steven
Madden
•
Steven Madden, Ltd. designs, sources, and sells fashion-forward name
brand and private label footwear for women, men, and children.
Finish Line
Inc.
•
Finish Line, Inc., operates as a specialty retailer of athletic shoes,
apparel, and accessories in the United States.
Columbia
•
Columbia Sportswear Company provides apparel, accessories, and
equipment for men, women, and youth under the Columbia, Mountain
Hardwear, and prAna brands.
Caleres,
Inc.
•
Caleres, Inc., operates through two segments, Famous Footwear and
Brand Portfolio. It offers licensed, branded, and private-label casual,
dress, and athletic footwear products to women, men, and children.
Under
Armour
•
Under Armour, Inc., offers its apparel in compression, fitted, and loose
types to be worn in hot, cold, and in between the extremes.
These comparable companies were narrowed down by business description and industry and are
competitors with Skechers
Capital IQ
Comparable Analysis
Ratio Analysis
Skechers Inc.
Comparable Companies Analysis
Company Name
Tax Burden
Wolverine World Wide Inc.
71.79%
DSW Inc.
61.68%
Deckers Outdoor Corp.
73.16%
Genesco Inc.
62.25%
Under Armour, Inc.
60.79%
Steven Madden, Ltd.
65.28%
Finish Line Inc.
67.28%
Columbia Sportswear Company
69.10%
Caleres, Inc.
72.47%
Skechers Inc.
71.55%
Comp Ratio
Dupont Analysis
Interest Burden Operating Margin Asset Turnover LeverageROE
78.95%
8.33%
1.08
2.89 17.91%
102.73%
9.70%
1.75
1.42 15.56%
98.54%
12.35%
1.63
1.22 17.72%
93.86%
5.85%
1.89
1.58 12.06%
96.68%
11.48%
1.68
1.53 17.31%
102.24%
12.56%
1.49
1.33 16.60%
99.99%
6.61%
2.17
1.43 13.90%
99.84%
9.47%
1.24
1.31 10.34%
87.45%
4.90%
2.17
2.33 14.51%
92.15%
11.32%
1.35
1.53 17.16%
Skechers has average ratio among its competitors
Bloomberg
Comparable Companies
Analysis
Enterprise Value /
Company Name
Wolverine World Wide Inc.
DSW Inc.
Deckers Outdoor Corp.
Genesco Inc.
Under Armour, Inc.
Steven Madden, Ltd.
Finish Line Inc.
Columbia Sportswear Company
Caleres, Inc.
LTM
Ticker Revenue
WWW
0.9x
DSW
0.7x
DECK
1.0x
GCO
0.5x
UA
5.3x
SHOO
1.4x
FINL
0.3x
COLM
1.4x
CAL
0.5x
Skechers
SKX
Minimum
Mean
Median
Maximum
Skechers Inc.
Selected Multiples
Enterprise Value
Less: Net Debt
Equity Value
Price per Share
Weight
Estimated Price per Share
Fully Diluted Shares Outstanding
Price /
LTM
FY1
Diluted EPS Diluted EPS Sales
Book
16.2x
12.5x
1.97
13.0x
16.7x
2
11.8x
10.0x
1.9
13.6x
11.6x
1.4
94.0x
75.5x
12.6
18.7x
15.2x
3
9.8x
9.6x
1.3
21.5x
19.5x
2.5
15.2x
14.3x
2.1
EBITDA
8.5x
6.0x
7.3x
5.5x
41.1x
10.5x
3.9x
10.5x
7.3x
EBIT
10.2x
7.7x
9.1x
8.1x
51.0x
11.7x
5.1x
12.9x
9.4x
1.5x
11.6x
13.5x
21.9x
14.5x
3.32x
0.3x
1.3x
0.9x
5.3x
Ma
3.9x
11.2x
7.3x
41.1x
5.1x
13.9x
9.4x
51.0x
9.8x
23.8x
15.2x
94.0x
9.6x
20.5x
14.3x
75.5x
1.3x
3.2x
2.0x
12.6x
Comparable Company Valuation
3,004.4 #ERROR!
395.2
340.0
1.5
2.1
0.9x
7.3x
9.4x
15.2x
14.3x
2,645.30
2,885.23
3,181.98
22.0
29.8
(408.2)
(408.2)
(408.2)
2,237.1
2,477.0
2,773.8
$14.32
$15.86
$17.76
$22.04
$29.78
10.00%
10.00%
10.00%
23.33%
23.33%
$20.73
1.954865 2.108469974 2.298450462 5.14266667 6.94941063
156.2
8.23
2.0x
16.5
$16.46
23.33%
3.84059
Median multiples were selected and the price ratios were weighted more heavily
Capital IQ
Discount Rate
Weighted Average Cost of Capital
Cost of Debt
Long-Term Borrowings
2.19% Notes Due 2020
3.54% Notes Due 2015
3.19% Notes Due 2016
5.24% Notes Due 2019
11.5% Loan Due 2018
Less current installment
Weighted Average Long-term Borrowing
Weighted Average Short-Term Borrowing
Weighted Average Cost of Debt
After Tax Cost of Debt
Amount
69,879.0
13,582.0
15,220.0
1,270.0
761.0
(30,565.0)
70,147.0
70,147.0
57
Weight
99.6%
19.4%
21.7%
1.8%
1.1%
-43.6%
99.9%
0.1%
Interest Rate
2.19%
3.54%
3.19%
5.24%
11.50%
3.78%
0.50%
0.766
25.6%
0.893
6.12%
2.17% 10-Year US Treasury
0.00%
85%
7.64%
Annualized Return Since 2013
Concluded Cost of Equity
26.7%
10.5%
3.78%
2.45%
After-Tax Cost of Debt
Cost of Equity
Weighted Average Cost of Capital
Risk Premium
Selected WACC
Weighted Average Cost of Capital
Cost
Weight
2.45%
7.1%
10.5%
92.9%
9.93%
1.07%
11.00%
The selected WACC is 11% with 1.07% risk premium added
Bloomberg
Notes
Cost of Equity
CAPM
Unlevered Beta
Debt to Equity Ratio
Relevered Beta
Market Risk Premium
Risk Free Rate
Size Premium
CAPM Cost of Equity
15%
Revenue Projection
Revenue
Domestic Wholesale
% growth
International Wholesale
% growth
Retail
% growth
E-commerce
% growth
Royalty Income
% growth
Total Revenue
% growth
12/31/2010
2011.47
1,131.93
436.64
410.70
27.61
4.60
2011.47
For the Fiscal Year Ending
12/31/2011 12/31/2012 12/31/2013 12/31/2014
1613.62
1567.42
1854.06
2386.66
688.19
652.65
802.16
997.99
-39.20%
-5.16%
22.91%
24.41%
487.30
432.16
478.80
689.20
11.60%
-11.31%
10.79%
43.94%
410.46
453.60
538.19
663.53
-0.06%
10.51%
18.65%
23.29%
20.07
21.91
27.21
26.84
-27.31%
9.16%
24.22%
-1.36%
7.60
7.10
7.70
9.10
65.22%
-6.58%
8.45%
18.18%
1613.62
1567.42
1854.06
2386.66
-19.78%
-2.86%
18.29%
28.73%
2015E
2016E
1262.46
26.50%
1068.25
55.00%
829.41
25.00%
20.88
2.00%
1597.01
26.50%
1388.73
30.00%
1036.76
25.00%
21.30
2.00%
3181.00
33.28%
4043.80
27.12%
Forecast
2017E
2018E
2019E
1788.66
12.00%
1666.47
20.00%
1171.54
13.00%
21.72
2.00%
1895.98
6.00%
1999.77
20.00%
1323.84
13.00%
22.05
1.50%
1990.77
5.00%
2299.73
15.00%
1456.23
10.00%
22.38
1.50%
4648.39
14.95%
5241.64
12.76%
5769.11
10.06%
2015 initiatives for international wholesale
SKX intend to further increase their share of the international footwear market by heightening their marketing in emerging countries
2015 last quarter initiatives for retail:
SKX have established their precence in what they believe to be most of major domestic retail markets.
SKX will grow business internationally
SKX will open another 12-17 stores during the last quarter 2015
Expansion of international market will drive the sales of international wholesale segment
and the retail segment
SKX 2014 10K and 2015 10Q
DCF Analysis
EBIT
(-) Taxes
(+) Depreciation & Amortization
(-) Capital Expenditures
(-) Increase in NWC
Free Cash Flow
Period
PV Factor
Present Value of Free Cash Flow
2015E
2016E
2017E
2018E
2019E
401.5
510.4
586.7
661.6
728.2
71.1
90.3
103.8
117.1
128.9
67.2
85.4
98.2
110.7
121.9
124.9
158.7
182.5
205.7
226.4
139.5
139.0
97.4
95.6
85.0
133.2
207.7
301.2
353.9
409.7
0.25
1.25
2.25
3.25
4.25
0.9743
0.8551
0.7704
0.6941
0.6253
$ 129.8 $ 177.6 $ 232.0 $ 245.6 $ 256.2
Sum of Present Value of Free
Cash Flows
$ 1,041.3
Terminal Value
Long-Term Growth rate
Terminal Value
PV Factor
Present Value of Terminal Value
3.00%
5,277.3
0.6253
$ 3,300.0
4,341.4
-408.2
4,749.6
156.2
$ 30.41
Discount Rate
Value per Share
Enterprise Value
(-) Net Debt
Equity Value
Fully Diluted Shares Outstanding
Price per Share
Sensitivity Analysis
$ 30.41
10.0%
10.5%
11.0%
11.5%
12.0%
$
$
$
$
$
2.0%
31.24
29.46
27.88
26.46
25.19
$
$
$
$
$
Long-Term Growth Rate
2.5%
3.00%
3.50%
32.81 $ 34.60 $ 36.67
30.82 $ 32.36 $ 34.13
29.07 $ 30.41 $ 31.93
27.51 $ 28.68 $ 30.00
26.12 $ 27.15 $ 28.31
$
$
$
$
$
4.00%
39.08
36.16
33.66
31.50
29.60
With a discount rate of 11% and a long-term growth rate of 3%, our DCF analysis
concludes a price of $30.41
SKX 2014 10K and 2015 10Q
Relevant Stock prospect
The price drop in November is due to overly optimism of analysts’ expectation
Yahoo Finance
Recommendation
Reason we
select the
stock: price
does not
reflect its
recent fast
growth,
oversold in
November.
During recent 2
weeks, price
rises from
$26.36 to
$32.26 closed
12/2/15
Recommendation:
Put into Watch list
DCF Valuation:
$30.41
Comparable
Valuation:
$20.73
Estimated
Valuation:
$28.47
Lower than
current price
We suggest putting the SKX stock into the portfolio watchlist
Investment Team