Investing.com -- A Piper Sandler analyst assumed coverage of Skechers with a Neutral rating and price target of $65 per share on Tuesday, highlighting the company's strengths in global reach and product innovation but cautioning about near-term challenges.
The analyst described Skechers as a "nimble operator" with impressive breadth as the world’s third-largest footwear brand but noted risks related to China, inventory levels, and pricing pressures.
"Skechers has done a great job driving demand by extending use cases and pulsing innovation," Piper Sandler states, citing the success of higher Average Selling Price (ASP) Comfort Technologies like Arch Fit and Slip-Ins.
They note that the brand is also diversifying by investing in performance footwear, including the reintroduction of running shoes in specialty stores next spring.
However, Piper says that overall ASPs were under pressure in recent quarters, compounded by competition in the hands-free and memory foam categories, where brands like Kizik offer lower-priced alternatives.
The analysts point to headwinds in Skechers’ international markets, particularly in China, which accounts for 14% of its sales.
They explain that the region turned negative in Q3 2024 and could take time to recover. Elevated inventory levels, including in-transit inventory, also pose risks.
Furthermore, while wholesale drove recent growth, Piper Sandler expresses concerns that this momentum may not be sustained, given the recent deceleration in direct-to-consumer sales.
Despite these challenges, Skechers has maintained gross margins of 53%, well above its five-year average, and is progressing toward its long-term goal of 11-12% EBIT margins. The company continues to invest heavily in marketing and aims for $10 billion in sales by 2026, implying a 6% compound annual growth rate.
While Piper Sandler acknowledges Skechers’ strategic strengths, the firm remains cautious in the short term, noting that elevated valuation metrics and uneven earnings forecasts temper its optimism.