The Bull Thesis For Skechers

• Shares of Skechers USA Inc SKX are up 38 percent year-to-date, despite having plunged 42 percent since October 16.
• Susquehanna’s Christopher Svezia maintained a Positive rating on the company, while reducing the price target from $45 to $30.
• There is a possibility of slower US wholesale reorders in the wake of retailer focus on reducing inventory receipts in 4Q, Svezia stated.

Analyst Christopher Svezia mentioned that although the Skechers brand continues to perform well, the soft retail backdrop remains a concern area. Increased non-Skechers inventory and retailers’ reluctance to reorder during a seasonally low-volume quarter for Skechers have restricted the rebound in US wholesale.

Slower reorders resulted in 11.9 percent growth in US wholesale in 3Q, Svezia mentioned. He added that sell-in at US wholesale has not materially improved. “We also believe heavy inventory levels of seasonal goods (boots and private label) will moderate the willingness for retailers to commit to inventory, even if a brand is performing well, like SKX.”

Svezia believes that US wholesale sales would rebound in 1Q. Apart from US wholesale, which constitutes 37 percent of Skechers’ total sales, business remains on track with significant international growth and positive comp within owned stores.

The EPS estimates for FY15 and FY16 have been reduced from $1.52 to $1.49 and from $2.00 to $1.84, respectively.