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.
  • Photo Via Company
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