Skechers USA Has Favorable Secular Tailwinds Of Comfort, Says Analyst

Piper Sandler analyst Abbie Zvejnieks initiated coverage on Skechers USA Inc SKX with a Neutral rating with a price target of $42.
Comfort is a growing category, and the analyst sees low-hanging fruit in terms of international expansion.
Skechers is well-positioned to capitalize on the casual footwear trend across the industry. Technical innovation and the ability to respond quickly to trends should drive continued demand with international and digital driving growth.
Also Read: Skechers' Margins Slated For Strong Expansion In 2023, Says Analyst
The analyst noted that inventory is elevated, exacerbated by logistics challenges, and thinks the environment will continue to be promotional through at least the 1H.
The analyst added that SKX could face tough compares in wholesale as Nike, Inc NKE feeds the channel, and is cautious on 2H consumer demand trends both domestically and internationally.
China will create a headwind in the near term. The analyst added that favorable topline and margin trends are in the picture as the market recovers, but the timing is uncertain.
Zvejnieks said Skechers should be able to expand its operating margin as the company laps logistics inefficiencies and elevated freight costs.
The analyst added that processing constraints at DCs led to $50 million of incremental logistics costs in Q3 in addition to headwinds from higher freight costs, weaker China revenue, higher distributor revenue, and unfavorable FX.
Many of these headwinds should be transitory. Although the analyst expects to continue to see headwinds from a more normalized promotional environment, increased wholesale pricing should start to flow through and benefit wholesale gross margin.
Given the uncertain macro environment, the analyst thinks the valuation looks fair as SKX is trading in line with its historical 5-year average P/E.
Also See: Nike Earnings Top Estimates, Here's A Look At Price Target Changes By The Most Accurate Analysts
Price Action: SKX shares are trading higher by 0.31% at $41.75 on the last check Thursday.
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