Why Spruce Point Capital Is Short Skechers: '30% To 50% Downside Risk To Share Prices'

Zinger Key Points
  • Skechers' revenue trends are "materially worse" than Wall Street expectations, a short seller says.
  • Spruce Point says it sees 30% to 50% downside risk in the stock.

Spruce Point Capital Management announced Tuesday that it is short shares of 

Skechers U.S.A., Inc SKX.

The short seller said it conducted a forensic financial evaluation of Skechers and found via channel checks in China that the footwear seller's revenue trends are "materially worse" than Wall Street's expectations. 

The Skechers Short Report: The shoe manufacturer will probably experience another "inventory event," which in the past has "crushed" the shares, according to the short report.

“Accounting for 20% of 2021 revenues and making a major contribution to growth, Skechers’ China business is vital to its investment story. Spruce Point conducted extensive on-the-ground research in China, speaking with a broad range of stores and distributors throughout the country. We believe trends are well below Street expectations,” the report said. 

Skechers' short interest stands at about 3.8%; after the news was released on Tuesday, shares of the company plunged 4.63% in premarket trading. The stock was higher by about 1% in Tuesday morning trading. 

Benzinga has contacted Skechers for comment on the short report. 

Related Link: Short Seller Accuses Oat Milk Producer Oatly Of Falsifying Revenue, Greenwashing

Why Spruce Point Projects 30%-50% Downside In Skechers: Spruce Point said it sees 30% to 50% downside risk to Skechers’ stock price. 

“Recent revenue growth aside, Skechers’ management team has presided over a blinding array of scandals, lawsuits, and questionable associations. Particularly troubling is the continued presence of Gil N. Schwartzberg, a paid advisor with a history of alleged fraud by the SEC, and connections to Chinese stock scams and promoters,” the report said.

Schwartzberg is linked to Continuum Capital Partners, which he co-managed with an individual formerly barred by FINRA, Spruce Point said. 
Schwartzberg invested in ZST Digital Networks, which Spruce Point said it exposed as a stock scam and which had its SEC registration revoked. 

Photo via Shutterstock.

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