Bear of the Day: Skechers (SKX)

Skechers (SKX) is a Zacks Rank #5 (Strong Sell) that designs, develops, markets, and distributes footwear for men, women, and children in the United States and overseas. The company offers casual, casual athletic, sport athletic, trail, sandals, boots, and retro fashion footwear for men and women.

The stock is 25% off 2022 lows, so are investors getting ahead of themselves?

Analysts are pumping the breaks, dropping estimates for the upcoming quarter and year. Considering the upwards move and estimates, profit taking should be considered.

More about SKX

Skechers was founded in 1992, is headquartered in Manhattan Beach, CA. The company is valued just over $6 billion and has a Forward PE of 18. SKX has Zacks Style Scores of “D” in Value and “F” in Growth.

Skechers operates about 4,300 company-and third party owned stores and sells its products through department and specialty stores, athletic and independent retailers, boutiques, and online retailers; and through its e-commerce sites, concept stores, and factory and warehouse outlet stores.

The company operates through four segments: Domestic Wholesale, International Wholesale, Retail Sales and e-commerce Sales. Skechers brands include Skechers USA, Skechers Sport, Skechers Active, Modern Comfort, Skechers Street, Twinkle Toes, Z-Strap, Skechers Stretch Fit, Skechers GOrun and many more.

Q4 Earnings

Skecher’s has a volatile earnings past, but the company has beaten 9 out of the last 12 quarters. However, when they reported in late October, Skechers reported their first miss in a year.

For Q3, Skechers posted revenue beat, but a 26% EPS miss. This miss included an unfavorable impact due to foreign exchange rates.

The company guided Q4 down significantly. Revenues for Q4 are now expected to be in a range of $1.73-1.78B v the 1.82B prior. Q4 EPS is now seen at a range of $0.30-0.40 v the expected $0.57.

Year over year gross margins feel to 47.1% b the 49.9% last year.

Estimates

The cut in guidance forced analyst to drop their numbers, with estimates falling significantly since earnings.

Over the last 30 days, number have fallen across all time frames. For the current quarter, estimates have gone from $0.57 to $0.34, a drop of 40%. For the current year, estimates dropped to $2.25 from $2.65, or 15%.

The numbers do not improve much for next year, with estimates dropping almost 11%.

Argus downgraded the stock to Hold from Buy after earnings. The firm cites supply chain disruptions and China COVID restrictions as headwinds for the stock.

The Technicals

The stock has struggled over the last year, falling almost 30% from 2021 highs. However, the last couple weeks the stock has surged over 20% after the company reported the earnings miss.

The stock has now broken the 200-day moving average and hit highs not seen since August. Normally this would be a bullish sign and there might be some short covering in the works.

But the $42 level has been a tough nut to crack this year. This stock has failed four times already in 2022 and given the fundamental challenges, this spot would likely see resistance again.

Investors would be better off taking profits and waiting for conditions to improve. If a entry is desired, the $35.30 area is the 50-day moving average and would likely offer some support.

In Summary

Considering the rally over the last few weeks, investors should be very cautious. The stock has come well off lows after a quarter where the outlook was not good. This can be a good sign if the overall market continues momentum.

However, due to supply chain issues and China COVID lockdowns, Skechers will likely see their fundamentals woes to persist over the short term. Investors should take the rally as an opportunity to sell and revisit the name down the road.

Investors looking for a retail footwear name might want to look at Crocs (CROX). This stock just recently spiked on a 15% EPS beat and is a Zacks Rank #2 (Buy).

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