Skechers Falls 9% Despite Earnings Beat, Street Stays Bullish

Shares of footwear maker Skechers USA plunged 9.2% on Oct. 30 even as the company delivered better-than-feared sales and earnings for the third quarter.

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Skechers’ (SKX) sales declined 3.9% year-over-year to $1.30 billion in 3Q, marking a significant improvement from the 42% sales slump in the second quarter. The company exceeded analysts’ sales expectations of $1.20 billion. Domestic sales declined 3.7% as a 172% rise in e-commerce sales and higher domestic wholesale business was not enough to offset the weakness in retail store sales.

International revenue fell 4.1% due to lower distributor and retail sales. However, the company experienced an improvement in key international markets, with China, Germany and Australia generating double-digit sales growth.

The company’s 3Q adjusted EPS fell 20.9% to $0.53, but came ahead of analysts’ forecast of $0.36. Higher warehouse and distribution expenses coupled with lower sales dragged down the earnings.

Commenting on the 3Q results, Skechers’ CFO John Vandemore said “Skechers third quarter results illustrate the strength and resilience of our brand, as business across the globe began to recover from the effects of the global pandemic. There were many bright spots, from a return to growth in our domestic wholesale channel and continued strength in e-commerce to resurgent growth in China and Europe.”

The CFO further stated, “We continue to invest for growth, including increased penetration in our direct-to-consumer channel, evident in new stores and an enhanced digital presence, as well as improved global distribution infrastructure.”

Skechers did not provide any 4Q outlook due to the business disruption and continued uncertainty amid the COVID-19 pandemic. (See SKX stock analysis on TipRanks)

Talking about the decline in Skechers stock price following the earnings release, Berenberg analyst Brian McNamara opined “Weakness after hours is likely a combination of inventory concerns and weaker gross margins; we do not share these concerns. On the former, the company was arguably a bit light on inventories heading into 11/11 last year, despite a strong Q4 sales result in China a year ago. Retail businesses also naturally require more inventory per pair sold relative to wholesale. On the latter, gross margin was broadly flat yoy despite some natural promotional activity as some markets work back into balance.”

McNamara reiterated a Buy rating with a price target of $52.

The Street is also bullish about Skechers with a Strong Buy analyst consensus based on 4 Buys and 1 Hold. With shares down 26.6% so far this year, the $42.75 average analyst price target indicates an upside potential of 34.8% over the coming months.