Piper Sandler: Skechers is a ‘nimble operator’ with near-term headwinds

Investing.com — A Piper Sandler analyst assumed protection of Skechers with a Impartial score and worth goal of $65 per share on Tuesday, highlighting the corporate’s strengths in international attain and product innovation however cautioning about near-term challenges. 

The analyst described Skechers as a “nimble operator” with spectacular breadth because the world’s third-largest footwear model however famous dangers associated to China, stock ranges, and pricing pressures.

“Skechers has completed a fantastic job driving demand by extending use circumstances and pulsing innovation,” Piper Sandler states, citing the success of upper Common Promoting Value (ASP) Consolation Applied sciences like Arch Match and Slip-Ins. 

They word that the model can be diversifying by investing in efficiency footwear, together with the reintroduction of trainers in specialty shops subsequent spring. 

Nevertheless, Piper says that general ASPs had been beneath stress in latest quarters, compounded by competitors within the hands-free and reminiscence foam classes, the place manufacturers like Kizik supply lower-priced alternate options.

The analysts level to headwinds in Skechers’ worldwide markets, notably in China, which accounts for 14% of its gross sales.

They clarify that the area turned unfavourable in Q3 2024 and will take time to recuperate. Elevated stock ranges, together with in-transit stock, additionally pose dangers. 

Moreover, whereas wholesale drove latest progress, Piper Sandler expresses issues that this momentum might not be sustained, given the latest deceleration in direct-to-consumer gross sales.

Regardless of these challenges, Skechers has maintained gross margins of 53%, nicely above its five-year common, and is progressing towards its long-term objective of 11-12% EBIT margins. The corporate continues to speculate closely in advertising and goals for $10 billion in gross sales by 2026, implying a 6% compound annual progress charge.

Whereas Piper Sandler acknowledges Skechers’ strategic strengths, the agency stays cautious within the brief time period, noting that elevated valuation metrics and uneven earnings forecasts mood its optimism.