Overheard On Wall Street: Market Watchers On Skechers & Foot Locker

Skechers USA Inc.

Cowen and Co. analyst John Kernan lowered his estimates for the Manhattan Beach, Calif.-based brand ahead of Q2 results, due July 21, based on “slower growth assumptions in the U.S. retail and wholesale business.”

In a note distributed on Friday, Kernan said he lowered his price target to $32, from $34, while he views Q2 consensus estimates as “fairly optimistic.”

“We suspect both wholesale and retail trends in the U.S. have slowed and could be pressured by discounting from both Nike and Under Armour,” Kernan writes.

The analyst lowered his Q2 sales growth estimate to 10 percent from 12 percent and his Q3 estimate to 19 percent from 22 percent. Clearance sales at the Sports Authority, Kernan notes, could also pressure the brand’s domestic same-store sales growth in Q2 and Q3.

Citi Research analyst Corinna Van der Ghinst said in a note Thursday that although Q2 is still expected to represent the weakest quarter of the year for Skechers due to difficult compares, “[Skechers’] timing shifts have been well communicated, while [point of sales] data indicates brand momentum continued to build post-Memorial Day into June, likely helping to offset U.S. softness earlier in the quarter.”

Van der Ghinst expects the brand to see solid improvement in the second half and predicts Q2 earnings per share of 54 cents compared with consensus estimates for EPS of 52 cents.

Foot Locker Inc.

Despite a not-so-upbeat note on Foot Locker Inc. from Cowen and Co. this week, Citi Research’s McShane said her recent store checks reveal that the retailer’s promotions remain low, while new product from Adidas and Nike’s KD 9 could provide “sequential lift.”

“Promotions seemed muted with less than 10 percent of the store at 30 percent off (versus last year when less than 5 percent of the store was on sale at 30 percent off),” McShane wrote Thursday. “We observed the KD 9 doing extremely well based on its better price point as well as the improved ankle support.”

Acknowledging that Foot Locker’s Q2 will go up against the company’s toughest compares since Q4 ’14 — facing a 9.6 percent comp gain in the prior year — the analyst said she believes the company’s mid-single-digit comp guidance is achievable.

“Foot Locker’s lead position with the top vendors allow them to carry compelling exclusives outside of basketball including exclusive fabrications of Adidas Stan Smiths, Nike Hurache and Presto,” McShane wrote, listing reasons that the company’s guidance remains reasonable. “Foot Locker has the ability to chase key trends and traffic, and [average selling prices] are likely to be up given the diversification of the banners and product offerings.”

She added, “Foot Locker’s [quarter-to-date] compare is less difficult at [mid-single digits] due to a later start to Labor Day last year.”

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