Shares of Skechers USA Inc. remain in the red today after the company reported mixed fourth-quarter results on Thursday as it weathers pandemic pressures and an uncertain economic outlook.
As of 11:30 a.m. ET, SKX stock was in the red about 2% at $36.38.
According to some insiders, the casual shoemaker’s challenges are indicative of what is becoming the dominant theme among many popular shoe brands: the underlying business and product remain strong but are at the mercy of the global health crisis and of its dramatic twists.
“Skechers continues to be well positioned in the active, work and lifestyle footwear categories given the comfort and value propositions of its products,” Cowen analyst John Kernan wrote in a distribution note. Thursday evening. “However, given the uncertainty surrounding the COVID-19 recovery and the many shifts in channels and geographic mixes, we believe the optimism of the consensus numbers may be misplaced.”
Kernan lowered his Skechers stock price target to $32 from $36, noting that the brand’s cheaper valuation relative to its peers (Nike shares, for example, are priced at $144) creates a “cushion on the decline”.
Meanwhile, consensus bets see SKX sales in the first quarter of fiscal 2021 gain 10% to $1.37 billion, with earnings per share up 60% year-over-year to 53 cents per share – the forecast Kernan says is high despite Skechers’ alleged market strength.
Amid the disruptions from COVID-19, the Manhattan Beach, Calif.-based brand on Thursday posted fourth-quarter sales a modest 0.5% to $1.32 billion, which was in line with forecasts. Earnings, meanwhile, fell 10% to $53.3 million, or 34 cents per share. On an adjusted basis, earnings per share came in at 24 cents and missed analyst bets for 30 cents a share.
As the global health crisis has led people to stay indoors due to personal apprehensions as well as government restrictions in some cities, Skechers – like many of his peers – has looked to e-commerce, where sales soared 142.7%.
“We continue to view our e-commerce channel as a significant growth opportunity as sales have increased significantly across our domestic and international sites that we currently operate,” Chief Operating Officer David Weinberg told investors during a conference call yesterday. “And this coming year, we plan to launch new sites in Europe and South America, which will provide both a better brand experience for consumers as well as a new sales channel for Skechers in many regions.
The brand also continued its momentum in certain international markets, notably in China, where wholesale revenues increased by 29.7%. The company also recorded double-digit increases in Chile, the United Kingdom, Germany and Spain. Skechers’ international direct-to-consumer business was down 4.4%, which Weinberg said was due to lower traffic with lockdown guidelines, reduced hours and temporary closures, primarily in Europe, Canada and in Latin America.
As the coronavirus crisis rages on, Skechers’ presence in European markets remains a concern as government restrictions have often been tightened throughout the pandemic, according to Jane Hali, CEO of Jane Hali & Associates, and Jessica Ramirez, research analyst within the company. .
“[We are] neutral on SKX for the fourth quarter and long term,” they said in a distribution note this week, signaling additional caution about the brand’s presence in certain retail channels under pressure.
“Skechers’ business is heavily focused on US department stores and off-price channels, which have been weak during the pandemic,” they added. “Furthermore, its product assortment at Kohl’s, Macy’s and off-price is undifferentiated. Among the partner wholesalers, [DSW parent] Designer Brands offers the most comprehensive assortment, as it includes some of the [Skechers’] latest styles.
Looking ahead, the company did not provide a full year outlook citing ongoing business disruptions and considerable uncertainty surrounding the impact of the COVID-19 pandemic on its business globally.
“We expect many markets to remain struggling in the first half of the year due to the pandemic, but we believe some countries are showing signs of recovery,” Weinberg told investors Thursday. “During this period, we will continue to manage the flow of our inventory to meet demand where we are open, spend prudently in markets still impacted and drive sales where possible.”
The company ended the fiscal year with inventory of $1.02 billion, down 5% or $53.1 million from December 31, 2019. Skechers said lower inventory levels of year-over-year was largely attributable to lower domestic and European inventories, partially offset by higher inventories in China to “support” sales growth.