On Tuesday, Piper Sandler initiated coverage on Skechers USA (NYSE:SKX), assigning a Neutral rating to the footwear company's shares, with a price target set at $65.00. The firm's analysis acknowledges Skechers' extensive global presence and diverse product lineup, noting its status as the third-largest footwear brand in the world.
With a market capitalization of $10.73 billion and impressive year-to-date returns of 15.5%, Skechers has been expanding its investments into Performance categories and is currently involved in seven different sports. InvestingPro analysis reveals the company maintains a GREAT financial health score, supported by strong momentum and profitability metrics.
Piper Sandler points out several challenges that could impact the company's near-term performance. These include weaker sales in the China market, which accounts for 14% of Skechers' total sales, and a gross margin shortfall in the third quarter of 2024.
Despite these concerns, InvestingPro data shows the company maintains a healthy gross profit margin of 53.12% and has achieved revenue growth of 10.1% over the last twelve months. Concerns have been raised over elevated inventory levels, particularly in China and higher in-transit inventory, which may pose a risk to the company.
The analyst's earnings projections for Skechers in 2025 are 6% below the consensus, with the Street anticipating a 16% growth in earnings per share (EPS). This is in contrast to the 5-10% growth guidance provided by Skechers' management at the beginning of the year. The current valuation of Skechers stands at 15 times price-to-earnings (P/E), which is slightly above the averages for 2022 and 2023 by 1-2 points.
Piper Sandler also highlighted the company's active approach to stock acquisitions, with approximately $5 in cash per share and $910 million remaining in its buyback program. Skechers has seen a significant increase in short interest, with the number of shares short more than doubling since the start of the year. The firm provides a bull versus bear price range for Skechers' stock, ranging from $55 to $75.
In other recent news, Skechers USA Inc (NYSE:SKX). has been in the spotlight, with several firms adjusting their outlooks for the company. Williams Trading has exhibited confidence in Skechers, adjusting its stock price target upward to $85.00 from an earlier $82.00 and maintaining a Buy rating.
The firm's optimism stems from recent investor meetings, new product evaluations, and positive feedback from wholesale accounts. Similarly, TD Cowen has increased Skechers' stock target to $88 from $76, citing a strong start to the fourth quarter and the company's ability to meet future financial guidance.
On the earnings front, Skechers reported robust third quarter results in 2024, with record sales of $2.35 billion, marking a 16% increase from the previous year. The company's earnings per diluted share rose by 35% to $1.26.
The growth was primarily driven by a 21% surge in wholesale operations and a 9.6% increase in Direct-to-Consumer sales. Despite regional challenges, particularly in China, Skechers saw substantial growth in international markets, which now account for 61% of total revenue.
Regarding analyst ratings, while Williams Trading and TD Cowen have reaffirmed their Buy ratings, Needham initiated coverage on Skechers with a Hold rating, citing near-term challenges such as a difficult market in China and moderating gross margins. Despite these challenges, the firms acknowledged Skechers' strengths, including innovation, comfort, and competitive pricing. These attributes are expected to help Skechers gain market share globally over time.
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