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Bear of the Day: Skechers U.S.A (SKX)

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After a promising start to 2018, Footwear and Apparel maker Skechers (SKX - Free Report) has fallen on hard time in the last two weeks, shedding nearly 30% of its market value after issuing disappointing guidance with its Q1 earnings report.

First quarter results at Skechers were basically in line with estimates, with Skechers earning $0.75/share, exactly meeting the Zacks Consensus Estimate.  Revenues and Operating income increased over the previous year by 17% and 20% respectively. In the official release, management tried to paint the recent performance as positive, pointing out the Q1’s $1.25B in sales was a new record for the company.

Disappointing Guidance

What analysts couldn’t get past, however was that Skechers forecast both lower revenues and earnings for Q2.  Sales are expected to be inn the range of $1.12B to $1.14B and earnings were predicted to be between $0.38/share and $0.43/share. 

Estimated quarterly sales estimate included a “shift in shipments from the second quarter to the back half of the year for several key international distributors and domestic accounts.” which was seen as an indication of softening demand for Skechers products.

Traditional Retail Model

Several analysts also questioned the logic of Skechers growing retail aspirations.  With 2,600 retail stores worldwide, Skechers plans to open at least 450 more in the coming year. With most apparel manufacturers moving increasingly toward online sales and a reduced footprint in expensive brick and mortar retail locations, Skechers seems to be headed in the opposite direction, investing in new stores, but without an expectation of increasing revenues.

All five of the analysts covering Skechers in the Zacks Consensus lowered their estimates for 2018 in the past 30 days and the average now stands at $2.07/share, down from $2.30/share a month ago. Thanks to the slew of downgrades, Skechers is a Zacks Rank #5 (Strong Sell).

One potential bright spot for Skechers is that in Q1 they completed only $3M of a planned $150M share repurchase program leaving $147M available to buyback shares at the currently depressed price, though investors seem to think it’s too little too late.

In the Shoes and Apparel sector, investors would be better served to consider Rocky Brands (RCKY - Free Report) a Zacks rank #1 (Strong Buy) or Steve Madden (SHOO - Free Report) , a Zacks Rank #2 (Buy) both of which have been exceeding earnings estimates lately resulting in upward revisions for Q2 and 2018.


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Skechers U.S.A., Inc. (SKX) - free report >>

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Rocky Brands, Inc. (RCKY) - free report >>

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