Skechers’ shares were down on Thursday afternoon as the comfort-footwear brand revealed a sales drop in China in the fourth quarter.
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.
Skechers sales in China dropped 23% in the fourth quarter, in part due to Covid-19 related restrictions and temporary store closures in November. Despite the slowdown, Skechers’ chief operating officer David Weinberg said in a statement that momentum will likely pick up in 2023, following recent improvements in the region. China relaxed some of its zero-COVID policy and travel restrictions in recent months, which should bode well for brands like Skechers that have a large presence in the region.
“With the recent elimination of the zero-COVID policy, we believe that our business in China will improve throughout 2023,” Weinberg said.
Overall, the Los Angeles-based footwear company delivered better-than-expected results for the fourth quarter. The company reported total sales of $1.88 billion, up 13.5% over the same period last year and ahead of analysts’ expectations of $1.77 billion. Diluted earnings per share also beat expectations, at $0.48. Wholesale sales, driven by the U.S., Germany, India, Mexico, and Spain, were up 15.7%. DTC sales grew 10.8%.
For the full-year of 2022, Skechers broke annual sales records of $7.4 billion, up 18% from the prior year.
As improvements begin to take root in China, analysts say Skechers is one of the likeliest brands to capture renewed demand after multiple quarters of stagnation. In A Friday note before Skechers reported Q4 earnings, Wedbush analyst Tom Nikic said Skechers will likely benefit from “brand momentum and international tailwinds” in China.
“Skechers has the highest penetration of China revenue in our coverage (16%) and is key to the Skechers stock narrative,” he said. “With China abandoning the ‘Zero COVID’ policy, we view Skechers as one of the prime potential beneficiaries.” The weakening U.S. dollar and strength in other international markets will also be a tailwind for Skechers’ global business, other analysts noted.
In the U.S., Skechers is also seeing improvements with regard to its inventory availability in its domestic distribution center, Weinberg noted.
Looking ahead, Skechers expects 2023 sales to land between $7.75 billion and $8 billion, with diluted earnings per share of between $2.80 and $3.00. In Q1, Skechers expects sales between $1.8 billion and $1.85 billion and diluted earnings per share of between $0.55 and $0.60. For the long-term, Skechers is looking to achieve $10 billion in sales by 2026.