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Skechers’ Pandemic Recovery Says a Lot About the Road Ahead for Shoe Brands

Shares for Skechers USA Inc. remain in the red today after the company on Thursday posted mixed fourth-quarter results as it shoulders pandemic pressures and an uncertain economic outlook.

As of 11:30 a.m. ET, SKX stock was in the red roughly 2% to $36.38.

According to some insiders, the casual footwear maker’s challenges are indicative of a what is becoming the prevailing theme among many popular shoe brands: The underlying business and product remains solid but are at the mercy of the global health crisis and its dramatic twists and turns.

“Skechers continues to be well-positioned in the active, work and lifestyle footwear categories given its products’ comfort and value propositions,” wrote Cowen analyst John Kernan in a distribution note on Thursday night. “However, given the uncertainty around the COVID-19 recovery and the many channel and geographic mix shifts, we believe the optimism in consensus numbers may be misplaced.”

Kernan lowered his price target of Skechers stock to $32 from $36, noting that the brand’s cheaper valuation compared to peers (Nike shares, for example, are priced at $144) creates  a “downside cushion.”

Meanwhile, consensus bets see SKX fiscal year 2021 Q1 sales gaining 10% to $1.37 billion, with earnings per share shooting up 60% year over year to 53 cents per share — predictions that Kernan indicates are lofty despite Skechers’ purported market strength.

Amid COVID-19 disruptions, the Manhattan Beach, Calif.-based brand on Thursday posted Q4 sales a modest 0.5% to $1.32 billion, which was consistent with forecasts. Profits, meanwhile, declined 10% to $53.3 million, or 34 cents per share. On an adjusted basis, earnings per share came in at 24 cents and missed analysts’ bets for 30 cents per share.

As the global health crisis led people to stay indoors due to personal apprehensions as well as government restrictions in some cities, Skechers — like many of its peers — leaned into e-commerce, where sales climbed 142.7%.

“We continue to view our e-commerce channel as an opportunity for meaningful growth, as sales increased significantly on both our domestic and international sites that we currently operate,” COO David Weinberg told investors during a conference call yesterday. “And this coming year, we plan to launch new sites across Europe and South America, which will provide both a better brand experience for consumers as well as new sales channel for Skechers in many regions.

The brand also continued to see momentum in certain international markets, particularly in China, where wholesale revenues rose 29.7%. The company also saw double-digit increases in Chile, United Kingdom, Germany and Spain. Skechers international direct-to-consumer business decreased 4.4%, which Weinberg said was due to a decline in traffic with stay-at-home guidelines, reduced hours and temporary closures, primarily in Europe, Canada and Latin America.

As the coronavirus crisis rages on, Skechers’ presence in the European markets remains a concern as government restrictions have been tightened often throughout the pandemic., according to Jane Hali, Jane Hali & Associates CEO, and Jessica Ramirez, a research analyst with the firm.

“[We are] neutral on SKX for Q4 and long-term,” they said wrote in a distribution note this week, signaling further caution on the brand’s presence in certain, pressured retail channels.

“Skechers’ business is heavily focused on U.S. department stores and off-price channels, which have been weak during the pandemic,” they added. “In addition, its product assortment at Kohl’s, Macy’s and off-price is not differentiated. Amongst wholesale partners, [DSW parent] Designer Brands has the strongest assortment, since it includes some of [Skechers’] newest styles.”

Looking ahead, the company did not provide a fiscal year outlook citing the ongoing business disruption and substantial uncertainty surrounding the impact of the COVID-19 pandemic on its business globally.

“We anticipate many markets will remain challenged in the first half of the year due to the pandemic, but believe some countries are showing signs of recovery,” Weinberg told investors on Thursday. “During this time, we will continue to manage the flow of our inventory to fulfill demand where we are open, spend prudently in markets still impacted and drive sales where possible.”

The company closed out the fiscal year with inventory of $1.02 billion, a decrease of 5% or $53.1 million from December 31, 2019. Skechers said the decrease in year-over-year inventory levels was largely attributable to lower domestic and European inventories, partially offset by higher inventories in China to “support” sales growth.

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