Skechers USA Inc.'s shares fell sharply in Tuesday trading after a Wedbush Securities analyst gave a bleak assessment of the shoe maker.
THE SPARK: Wedbush analyst Corrina Freedman initiated coverage of Skechers with an "Underperform" rating.
Skechers is struggling with weaker-than-expected sales of its new lightweight shoes, which could hurt its wholesale orders for fall, according to Freedman. The company will also face challenges from unfavorable foreign-exchange rates and leftover inventory from the company's decision to flood the market with toning shoes.
The analyst also was skeptical of the company's "copy and chase" model of making its own version of popular shoe styles after other companies lead the way.
THE BIG PICTURE: Skechers reported a fourth-quarter loss in February due to weak sales across most of its business lines. The company has struggled for some time to recover from its emphasis on toning shoes.
The shoe style was immensely popular for a period and most competitors came up with their own offerings. However, Skechers flooded the market with its product and drove down prices across the niche. That left the company with lower revenue and an excess of inventory.
Skechers has since worked to diversify its business, but it has yet to find an approach that delivers the growth that investors want to see.
THE ANALYSIS: Freedman said she sees no reason to hold the company's shares in the near term. She expects the company will struggle through the fall and is skeptical of the company's forecast of flat gross margins for the year, as larger and more successful competitors struggle with higher prices for fuel and other costs. She put an $11 price target on the shares.
SHARE ACTION: Skechers shares fell $1, or 7 percent, to $13.30 in afternoon trading. The stock has traded between $11.21 and $21.47 in the past 52 weeks.