After UGGs, Ladies Love This Shoe Best

Certain shoe stocks right now are “smoking hot,” Cramer said Monday. He already put Deckers Outdoor on his conviction-buy list, and today he added another: Skechers.

The company’s most recent quarter was flawless, or, in Cramer parlance, “hairless.” There was nary a blemish on it. Earnings came in 6 cents ahead of the 52 cents a share consensus estimate, while sales were up 30% year-over-year. That’s what Cramer defines as a true beat, meaning revenues drove profits higher rather than cost cuts.

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In fact, Skechers’ sales were up across the board. Combined domestic and international same-store sales for the fourth quarter jumped 17%, domestic wholesale revenues soared 38%, and the retail businesses both here and abroad saw a 27% increase. Cramer called these numbers nothing short of “amazing.”

Skechers has done a great job of controlling its inventories as well. This is key because it marks the difference between also controlling prices or being forced to sell the overstock at fire-sale prices. Well, expect no jaw-dropping markdowns here. Inventories for the quarter dropped 14% year-over-year. Even better: The business backlog was up 40% at the end of 2009. So all the key metrics seem to be headed in the right direction.

Management fully expects the growth to continue. On the earnings conference call, they predicted a 30% rise in sales during the first half of 2010 – and that’s a conservative estimate, they said. Skeckers also plans to open 25 to 30 more stores this year, in addition to new outlets in China, India and Brazil. And a new flagship location just opened in London’s Covent Garden.

Cramer also likes Skechers Shape-Ups walking shoes and Tone-Ups sandals. They’re designed to give people better posture, while also promoting weight loss, improving muscle tone and reducing joint stress. In short, they make your legs look better. Cramer said the idea feeds right into the vanity that drives late-stage capitalist economies, and he expects these shoes to be a hit.

SKX is less than $2 from its 52-week high, ramping 444% from last year’s March lows. Even still, the stock trades at just 11 times 2011 earnings with a 15% long-term growth rate. If Cramer’s definition of cheap is a stock trading for one time or less than the growth rate, then you can see Skechers right now is a value play. And when you subtract the $6 in cash a share the company has, then that multiple drops to nine, making SKX even cheaper.

For investors who may think Skechers has run too much, remember this: Anyone who bought Deckers on Cramer’s Oct. 13, 2009, recommendation collected a nice 54% return, even after the stock’s 124% rebound from its March 2, 2009, low. The lesson here is that you can't always just buy low and sell high.

“Sometimes you do have to buy high and sell higher,” Cramer said.

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