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Tickers in this Article: SKX, NKE, TBL, WWW
2008 was one of the worst years on record for retail, but California-based Skechers USA (NYSE:SKX), maker of trendy shoes for both men and women managed to avoid the carnage. Many young adults seem to like their merchandise and recent sales and profit numbers would seem to verify this fact. (Hit the mall and shop for future investments, check out Analyzing Retail Stocks.)

A Record Quarter
CEO Robert Greenberg founded Skechers in 1992 after departing L.A. Gear, the women's athletic shoe company he created only nine years earlier. Originally meant to be a distributor of Doc Martens, after only one year it parted company with the British firm that owned the brand. Luckily, its own brand was building a loyal following that still exists today. Greenberg, firmly in control with 78.1% of the Class B shares and a 23.2% economic interest, had some great news to announce in October when it released its third quarter earnings. Highlights included the first ever quarter selling more than $400 million in product, a tax benefit lowering its effective annual tax rate from 34% to 27% and a high single-digit backlog increase, putting the company on track to do $1.4 billion in sales and earnings per share (EPS) of $1.77 in 2008. Both numbers are improvements from 2007. It's clear that affordable shoes in recessionary times are resonating with discriminating parents.

Global Growth
The big winner in the quarter ended September 30, 2008, was its international wholesale business, which now represents slightly less than a quarter of its business. International wholesale sales for the first nine months of 2008 increased 31% to $270.3 million from $206.3 million in the same period in 2007. Most of the increase came from the company's own directly owned subsidiary with the remainder generated by distributors.

Moving into 2009, its primary focus will be international, building a top-notch operation that can handle future global growth. Both the quarterly and nine-month numbers reveal that the international wholesale business was the gross profit driver in 2008, delivering 31% and 52% increases respectively.

Not Resting On Its Laurels
On January 6, it announced that it was getting into the children's clothing business, appointing Adjmi Apparel Group as the licensee. In business since 1976, Adjmi works with some of the biggest and best apparel companies, including Reebok. Adjmi will design, distribute, and market the line to one-year olds up to size seven for boys and size 12 for girls. Available in the fall at all stores carrying Skechers Kids footwear; this seems to be a sensible brand extension catering to mothers already buying shoes for their little ones.

Bottom Line
Skechers is in great shape. Over $3 cash, $128 million in EBITDA earnings to $16 million in debt, a current ratio above three with both price-to-sales and price-to-book well below one. Down 31% in the past 52-weeks, it is cheaper than Nike (NYSE:NKE), Timberland (NYSE:TBL) and Wolverine World Wide (NYSE:WWW) by almost every valuation measure. It was unjustly punished in 2008. This year might be different.

Read more on how to pick stocks based on value in Value By The Book and Stock-Picking Strategies: Value Investing.

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