Nailed It: Skechers Hit A New Low On Friday And This Hedge Fund Shorted It In 2015

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Nailed It: Skechers Hit A New Low On Friday And This Hedge Fund Shorted It In 2015

Skechers USA (NYSE: SKX) was one of the hottest stocks from 2013 through mid-2015 having risen from around $6 per share in January 2013 to more than $160 per share (note: the stock underwent a 3 for 1 split in 2015) by August 2015.  Yet the stock is now trading at a 52-week after its earnings report on Thursday disappointed the Street.

Skechers, a designer and marketer of lifestyle and athletic footwear for men, women, and children was a growth story that attracted the attention of many investors.  The company saw solid growth as it was able to capitalize on fashion trends and release products quickly to the market along with a successful marketing campaign.

However, when shares continued rising to absurd valuations, at least one hedge fund took notice and announced a short position.

Rev. Emmanuel Lemelson, a Reverend that also serves as the Chief Investment Officer of Lemelson Capital Management, explained why he was short Skechers’ stock in 2015.  He told Benzinga in June that the stock is fairly valued in the $40 to $60 range but at more than $100 per share it is trading at a “premium valuation” for a show company that isn’t top-tiered like Nike (NYSE: NKE) is.

Lemelson also accurately said that Skechers’ has two or three more quarters of strong growth but over the long-term the company’s strong growth can be sustained.

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Nailed It

Skechers’ woes began shortly after Lemelson’s short thesis.

During the third quarter of 2015 the company said that it earned $0.43 per share on revenue of $856.2 million.  Wall Street analysts were looking for the company to earn $0.55 per share on revenue of $876.54 million.

The third quarter report a year ago crushed Skechers’ stock as it lost around one third of its value in one day.  Lemelson remained unconvinced that a bottom has been reached and the stock was trading at around the $30 level but he felt further downside will be seen.

Skechers’ stock managed to remain range bound between the low-to-mid $20 level and around $35 per share since its third quarter report last year.  The company

However, the company reported its third quarter 2016 results on Thursday which confirmed the bear thesis that the company’s prospects remain poor.  Specifically, Skechers said that it earned $0.42 per share in the third quarter on revenue of $942 million while Wall Street analysts were expecting the company to earn $0.47 per share on revenue of $954 million.

Despite the fact that the third quarter proved to be the second highest sales quarter in its 24-year history, the company guided its fiscal fourth quarter revenue to fall in a range of $710 million to $735 million which is notably short of the $799 million Wall Street analysts were looking for and is based on an expected single-digit decrease in its domestic wholesale business.

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