Skechers' Margins Slated For Strong Expansion In 2023, Says Analyst

Raymond James analyst Rick Patel reiterated an Outperform rating on the shares of Skechers USA Inc SKX and raised the price target from $40 to $48.
The analyst continues to believe margins are positioned for strong expansion in 2023.
He thinks the underlying demand for SKX remains healthy, and sees significant margin recapture opportunity in 2023.
Skechers entered Q4 with excess inventory and was planning to lean into promotions to work through inventory.
Promotions are "stoking activity," and consumers are responding well. The analyst sees this benefiting the units per transaction (UPT), though average unit retail (AUR) is likely to be lower y/y on the discounting.
China continues to be negatively impacted by rolling COVID lockdowns. About 10% of stores were affected by lockdowns in Q3, and Q4 is trending higher.
The analyst thinks China has been and remains a risk to Global Brands, but Skechers's demand is tracking well in North America and Europe, which should drive growth for the company.
He continues to think 2023 is setting up to have strong margin expansion, especially in 2H23. This should reflect the easing of FX pressure, lower y/y freight costs, modestly lower y/y discounting, and lower warehouse-related costs for excess inventory.
Demand in SKX's DTC channel (stores and online) is outpacing Wholesale point-of-sale trends.
Underlying demand in Europe continues to be encouraging despite macro challenges that include inflation, the stronger U.S. dollar, rising energy prices in Northern Europe, and the Ukraine conflict.
Thus, the analyst expects to see margin improvement over on leverage from top line, enabling EPS growth to outpace revenue.
Price Action: SKX shares are trading higher by 3.04% at $43.45 on the last check Thursday.
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