For much of 2015, Skechers had been a top pick among analysts but a lower-than-expected Q3 earnings report combined with market volatility and inventory challenges have led analysts to pare down their expectations for the brand’s Q4 earnings release (Feb. 10).
“Sentiment has remained generally bearish since Skechers Q3 miss with elevated near-term inventory levels; we still need to get past another elevated inventory report in Q4 before investors start to regain confidence in this show-me story,” wrote Citi Research analyst Corinna Van der Ghinst on Feb. 3. “However, fundamentals remain robust in our view, with strong global demand, a solid balance sheet and more disciplined inventory controls than the past.”
On Jan. 22, a sidelined Susquehanna Financial LLLP analyst Christopher Svezia downgraded Skechers stock from positive to neutral and listed Q4 expectations, well below consensus, for the brand. Noting, “the Street is generally too high for Skechers to beat expectations in 4Q,” the analyst placed his bets on diluted earnings per share of 17 cents in Q4 — compared to average Wall Street expectations of around 20 cents to 21 cents.
“We are looking for sales growth of 20.6 percent to $687 million with U.S. wholesale up 7 percent; international up 45 percent and direct-to-consumer up 20 percent when Skechers reports,” Svezia added. (Consensus revenue estimates are $693.5 million.)
Noting that elevated inventory has been an issue for Skechers in the past — Skechers’ Q3 inventories rose 38 percent year-over-year, which some investors viewed as high against a backlog of 28 percent and revenue growth of 27 percent—Svezia said he still had some Q4 concerns.
“On inventory levels, while [they are] clean we just feel the optics around the likelihood of 40 percent to 50 percent inventory growth may not translate well versus Street expectations of 1Q revenue growth of 17 percent,” Svezia wrote. “This is not a brand issue; in fact, we continue to hear very positive feedback and order activity. We just feel the selling environment (heavy channel inventory of non-Skechers product leading to lower reorders) may not generate a beat in sales and earnings, something investors need to see.”
For his part, Sterne Agee CRT analyst Sam Poser remains bullish on Skechers ahead of Wednesday’s earnings announcement.
“Skechers is well positioned for 4Q15 and FY16 despite the fact that [the brand] can often be an angst inducing investment,” Poser wrote. “We are forecasting 4Q15 EPS of 24 cents and revenue of $702 million, above consensus estimates. Skechers historically does not provide guidance. However, on their 3Q call, management blessed the 2H15 consensus estimates, which at the time were for EPS of 23 cents and revenue of $704 million.”
Skechers’ profits climbed 30.3 percent in Q3 while its revenues rose 27 percent to $856.2 million. Market watchers had betted on revenues of around $876.5 million and earnings per diluted share of 55 cents — the company’s diluted EPS totaled 43 cents per share.