Despite a second-quarter shortfall, the outlook for Skechers (SKX), the third-largest athletic footwear manufacturer, is still positive. Management has elevated its financial forecast for FY24, reflecting optimistic sales observed in the first half of the year, propelled by robust demand for its casual footwear, records sales in the foreign market, and a forthcoming foray into the basketball shoe market. It announced a $1 billion share buyback and projected annual revenue between $8.875 billion and $8.975 billion to drive an anticipated earnings surge of $4.08-$4.18 per share.
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Skechers looks to enhance investors’ support while surpassing Wall Street’s expectations. Shares trade at a significant discount to industry peers, suggesting this is an opportune moment for value-oriented investors to consider adding the stock to their portfolio.
Skechers’ Global Expansion
Skechers is a well-known brand that designs, develops, and markets footwear for all demographics. The company’s recognizable brands include Skechers Hands-Free Slip-ins, Skechers Arch Fit, and Skechers Air-Cooled Memory Foam. It functions through two main sectors: Wholesale and Direct-to-Consumer.
To drive brand awareness and increase product offering globally, Skechers is rolling out a basketball-focused global launch in August, with ambassadors like Philadelphia 76ers’ star Joel Embiid, New York Knicks’ Julius Randle, LA Clippers’ Terance Mann, and WNBA’s Los Angeles Sparks Star Forward Rickea Jackson.
The company strategically aims to reach $10 billion in sales by 2026, with international markets playing a pivotal role alongside the North American market. Foreign sales account for 62% of the total revenue, amounting to $2.75 billion over the past six months, a noteworthy company record. The Direct-to-Consumer (DTC) market is spearheading this growth, providing increased profits by eliminating the middleman, with gross margins of 67% compared to 43.9% in the wholesale market.
Skechers’ Recent Financial Results & Outlook
Skechers Q2 results fell short of analysts’ expectations. The company reported revenue of $2.16 billion, missing the consensus estimate of $2.23 billion. However, Q2 sales marked a year-over-year increase of 7.2% and set a record for quarterly sales at the company. International and domestic sales rose by 6.9% and 7.7%, respectively. The company also reported that Direct-to-Consumer volume increased by 10.2%, and its wholesale volumes surged by 6.4%. The wholesale sales growth was primarily driven by a 10.3% increase in the Americas, and 3.9% from EMEA (Europe, The Middle East, Africa), despite a 2.6% decrease in APAC (Asia-Pacific).
The average selling price declined marginally by 0.8%, though the gross margin increased 220 basis points to 54.9% due to lower costs per unit. Net earnings stood at $140.3 million, with diluted earnings per share at $0.97, higher than analysts’ estimates of $0.95.
The company finished the quarter with cash, cash equivalents, and investments totaling $1.55 billion. Also, a slight decrease of 0.7% in inventory was recorded, bringing the total to $1.51 billion. In the second quarter, the company bought back 0.9 million shares of common stock for $60.0 million. As of July 25, 2024, the company initiated a share repurchase program to buy back $1.0 billion in common stock.
Management is also projecting Q3 2024 sales to fall between $2.30 and $2.35 billion, with diluted earnings per share approximated between $1.10 and $1.15.
What Is the Price Target for SKX Stock?
The stock has been on a steady upward trajectory, climbing 69% in the past five years. It trades toward the upper end of its 52-week price range of $45.58 – $75.09, though a recent pullback has its price momentum languishing, as it trades below the 20-day (68.76) and 50-day (68.27) moving averages. However, with a P/S ratio of 1.2x, the shares trade at a discount to the Footwear & Accessories industry average of 1.9x.
Analysts following the company have been constructive on the stock. For example, Evercore ISI analyst Jesalyn Wong recently raised the shares price target from $68 to $72 while maintaining an Outperform rating, noting Q2 was “a mixed bag.” Still, the consistent sales growth profile and new categories will allow Skechers to outpace overall category growth.
Skechers is rated a Strong Buy overall, based on the recommendations and price targets assigned by 12 analysts. The average price target for SKX stock is $76.33, representing a potential upside of 17.58% from current levels.
Skechers in Summary
Despite reporting results below analysts’ expectations in Q2, Skechers remains an alluring investment opportunity. Management elevated its financial forecast and announced a $1 billion share buyback, suggesting robust upside potential. Further, its relative discount compared to industry peers makes it a compelling prospect for value investors.
