On Wednesday, Evercore ISI adjusted its outlook on Skechers USA (NYSE:SKX) shares, reducing the footwear company's price target from $73.00 to $68.00, while still maintaining an Outperform rating.
The firm highlighted a forecast for revenues in the first quarter of 2024 to grow by 9.2% year-over-year, which is slightly below the consensus estimate of a 10.2% increase. This adjustment reflects subdued trends in the United States, along with economic pressures in European and Chinese markets.
Despite these challenges, there is a sense of optimism for the second half of the year, based on positive year-to-date trends that align with the company's guidance provided during the fourth quarter of 2023 earnings call.
Skechers' performance in the United States has been encouraging, showing low single-digit growth. The brand has also seen strong momentum with its Slipon line, suggesting a healthy brand status despite overall North American slowdowns in February and March.
In China, Skechers' online sales continued to grow, achieving a 16% year-over-year increase in the first quarter of 2024, which is a slight drop from the 17% growth seen in the previous quarter. However, physical store performance in China has been less robust, with March experiencing a significant deceleration across the sportswear industry, estimated at low single-digit growth.
Evercore ISI anticipates that the Chinese market will grow at a high single-digit percentage, which falls short of the Street's expectation of a 20% year-over-year increase.
The firm's analysis suggests that while Skechers is experiencing some headwinds, particularly in the North American and Chinese markets, there are still positive signs, such as the online growth in China and the success of specific product lines. The revised price target reflects a more cautious outlook but continues to signal confidence in the company's ability to outperform in the market.
InvestingPro Insights
As Skechers USA (NYSE:SKX) navigates a mixed financial landscape, InvestingPro data provides a deeper look into the company's performance and valuation. With a market capitalization of $8.96 billion and a P/E ratio that has remained fairly consistent at around 16, Skechers appears to be trading at a valuation that acknowledges its earnings potential. Notably, the company's PEG ratio, which stands at a modest 0.35, suggests that Skechers may be undervalued relative to its earnings growth trajectory.
InvestingPro Tips highlight Skechers' financial prudence and potential for shareholder returns. The company's liquid assets surpassing short-term obligations is a reassuring sign of financial stability, while its moderate level of debt allows for strategic flexibility. Additionally, analysts predict profitability for the current year, supported by a track record of profit over the last twelve months. However, it's worth noting that Skechers does not pay a dividend, which could influence investment decisions for income-focused shareholders.
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