Global Initiatives, New Store Openings & Tough Compares Create Mixed Q2 Preview For Skechers

Macroeconomic volatility, the brand’s global initiatives and a tough year-on-year comparison are top of mind for analysts ahead of Skechers USA Inc.’s Q2 earnings report, due after market close Thursday.

Citi Research analyst Corinna Van der Ghinst noted that while the second quarter is expected to represent the weakest quarter of the year for the brand due to tough compares — Skechers’ EPS had gained 127 percent in the comparable period — she continues to find reasons to be positive about the company.

Skechers’ timing shifts (sales pulled forward and back from Q1 and Q3 last year, China moving to distributor model) have been well communicated, in our view, 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 wrote on July 14. “The [second half] should benefit from sequential improvement in U.S. sales, international and 60 new retail stores.”

Market watchers expect the casual athletic shoemaker to post revenue gains of 11 percent, to $888.89 million, while earnings per share are expected to remain flat at 52 cents.

An upbeat Van der Ghinst placed her EPS bets a couple of pennies above consensus, at 54 cents, and predicts low-single-digit to mid-single-digit U.S. wholesale growth; 25 percent growth in international wholesale; and 3 percent retail comp gains.

Meanwhile, Cowen and Co. analyst John Kernan lowered his Q2 estimates on Skechers “based on slower growth assumptions in the U.S. retail and wholesale business.”

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 wrote on July 14.

Kernan lowered his Q2 sales growth estimate to 10 percent from 12 percent and believes that pressure stemming from Sports Authority’s liquidation could weigh on Skechers’ sales into Q3.

Similarly, Susquehanna Financial Group LLLP analyst Christopher Svezia lowered his Q2 EPS estimate to 51 cents, from 54 cents previously. While Van der Ghinst expects the brand’s new store rollout to contribute a better second half, Svezia notes that additional store openings will weigh on margins.

We believe management’s sales guidance of $875 million to $900 million is achievable, but feel operating expenses (new stores and global initiatives) could put pressure on earnings,” Svezia wrote on Friday.

Svezia forecasts sales growth in line with consensus and 2 percent gains at U.S. wholesale; international growth of 25 percent; and direct-to-consumer growth of 16 percent.

When Skechers last reported, the firm handily beat estimates for both revenue and profit. Its net income climbed 74 percent to $97.6 million and its revenues also increased 27.4 percent, to $978.8 million.

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