Skechers: Ignoring Obvious Value

Old news now, but Skechers (SKX) second quarter was less than stellar. It was sort of a replay of the December '07 quarter, weak top line and a miss on the bottom line. Gross margin looked great, but G&A expenses deleveraged the sales line. A positive swing in interest expense and other income boosted the eps comp by 2 cents, while a lower tax rate also modestly detracted from earnings quality. Inventories rose 31%, so shoppers better show up in Q3 or that may become a burden.

The midpoints of management guidance for the September quarter are revenues, up 9.5%, and earnings per share, up 15%. That suggests positive operating leverage, which was exceptionally good in the March quarter, will return. To be fair, the Street does not seem to do a great job of modeling earnings for the company, with the Sept '07 quarter 21% ahead of the Street, December 10% below, March