Despite China Slowdown, Analysts Are Still Bullish On Skechers

Skechers just posted a sales drop for Q4 in China, but analysts are still largely still upbeat about the footwear stock.

Skechers sales in China dropped 23% in the fourth quarter, in part due to Covid-19 related restrictions and temporary store closures in November. Total Q4 sales were $1.88 billion, up 13.5% over the same period last year. Wholesale sales, driven by the U.S., Germany, India, Mexico, and Spain, were up 15.7% and DTC sales grew 10.8%.

“The demand for the company’s products remains robust,” wrote UBS analyst Jay Sole said in a Friday note, outlining his major takeaways from the company’s fourth quarter results. “While a slower recovery in China and supply chain challenges negatively affected Q4 margins and earnings, we continue to believe Skechers is on track to deliver $10 billion in revenue by 2026, allowing it to remain the 3rd largest footwear company in the world.”

According to October research from UBS, Skechers “has some of the best loyalty scores among any athletic-wear brand” as well as a strong position in the U.S. And just last week, analysts upgraded the footwear stock as inventories level out and sales momentum persists in a newly reopened China, a major region for Skechers.

Williams Trading analyst Sam Poser also highlighted Skechers’ demand capabilities in a Friday note.

“Demand for Skechers across merchandise categories, gender and geographies remains robust,” Poser said, noting the positive response to the company’s hands-free slip-in footwear technology and as well as its kid’s products.

Poser also said Skechers is in a good position to benefit from a likely lack of inventory in the marketplace as retailers buy less product to account for the inventory excesses in the fall of 2022.

“Skechers has the most efficient supply chain in our coverage, and has brought in a large amount of spring 2023 orders early, and will be in position to meet the increased demand,” Poser said.

On the DTC side, strong numbers the U.S. also bode well for Skechers. Domestic DTC sales were up 30% in Q4, led by triple digit e-commerce growth and double-digit owned store growth. According to Wedbush analyst Tom Nikic, strength in this channel is indicative of strong demand for the brand.

He also noted that DTC gross margin was also up year-over-year, suggesting the sales bump was not entirely due to discounts.

“DTC trends suggest demand remains strong, and there could be upside potential if China recovers more quickly than expected,” Nikic wrote.

Access exclusive content