Skech Faces Overselling By Wall Street

From July 2011 to July 2015,

NPD Group2015, Cage's low price

After selling Cage Skechers in July 22nd, investors reconsidered for a whole weekend.

However, after this week, the selling momentum continues.

Cage's share price dropped further by 2% in July 25th, after a 23% plunge in July 22nd.

The company's second quarter report showed a slowdown in sales and ignited the trigger for the collapse.

Skech said sales pains would last until the next quarter.

This early warning led investors to worry that Cage's long-term sales momentum is slowing down rapidly.

More likely, however, Wall Street investors who have been overly optimistic about Cage are seeing reality.

During the period from July 2011 to July 2015, the stock price of Cage rose 750%, and its market value increased from about $600 million in 2011 to $4 billion 600 million last year.

At the same time, the company's annual revenue nearly doubled, from $1 billion 600 million in 2011 to $3 billion 100 million in 2015.

NPD Group, a retail research firm, said that in 2015, with the increasing popularity of sportswear in the world, Cage's cheap sports shoes made the company take the place of Adidas (Adidas) as the second largest sports shoe seller in the United States.

According to the data of the EBO group, Nike (Nike) is the largest seller of sports shoes in the United States with a market share of 62%.

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Share prices fell sharply

In 2015, the stock price of Cage dropped 40%, and the stock rose 360% from July 2013 to July 2015.

Note: in October 2015, Cage split shares according to 1:3 ratio.

But recently Adidas has made a comeback.

Under Armour is also rapidly expanding its sports shoe business.

Even the leaders of functional sports apparel, Nike and Asics, have launched more low-cost sneakers to fight with Skech. Cage has to cut the price of products.

In addition, recent lawsuits against Cage's infringement of rival brands are also against Cage's stock price.

The strengthening of the US dollar is also a big drag on the company's overseas sales.

The recent bankruptcy of Sports Authority, an important retail partner, is even worse.

But what worries Wall Street investors most is that Cage, the retailer of her wholesale client, Dick's Sporting Goods and Modell's, has cut orders for the school season, and the opening season is crucial to Cage.

You know, Skech's wholesale sales in the second quarter have dropped 5.4% year-on-year.

Meanwhile, other companies in the industry are gradually reducing their dependence on department stores and professional retailers, because these traditional channels are now hard to attract customers.

COACH, Ralph Lauren (Ralph) and Nike are trying to focus on their own stores and e-commerce channels, in order to control their own destiny.

Wholesale sales are weak.

Skech's wholesale sales share of total revenue is declining.

Wholesale sales in the US account for the total sales of the company.

There are signs that this strategy is working.

Skech said it expects to open 200 new stores by the end of 2016.

The company is promoting international business expansion, and sales in overseas stores increased by 40% in the second quarter.

Although wholesale sales in the second quarter dropped by 5.4% compared with the same period last year, sales of self run retail stores increased by 15% over the same period last year.

The decline in dependence on wholesale business also pushed the gross profit margin to 47.4% in the second quarter, compared with 46.8% in the same period in 2015.

But changing the long-term business model is no easy task, especially when Wall Street is looking for clues to see whether the slowdown will drag down the once high flying stock.

At present, Cage's expected price earnings ratio is about 12 times, while Nike and Andrew are 23 times and 60 times respectively.

Cage's expected price to earnings ratio is even lower than that of plastic shoe manufacturer Crocs and UGG, Deckers.

Investors may oversell Cage.