Friday saw Needham initiate coverage on shares of Skechers USA (NYSE:SKX) with a Hold rating, citing near-term challenges that could hinder the company's stock performance. The firm pointed out that Skechers is contending with several industry-wide issues, including a difficult market in China, negative retail comps in North America, and moderating gross margins from previously high levels.
According to the firm, these factors are likely to impact Skechers' share performance in the upcoming quarters. Despite these challenges, the firm acknowledged the footwear company's strengths, which include innovation, comfort, and competitive pricing. These attributes are expected to help Skechers gain market share globally over time.
The firm's analysis suggests that while Skechers remains a robust business, the current market conditions could make it tough for the company's shares to advance in the near term. The sentiment reflects the broader difficulties faced by the retail industry, particularly in markets like China where consumer spending has been unpredictable.
Needham's outlook for Skechers is tempered with caution, as they project that the current headwinds will unfold over the next several quarters. This projection is based on the current market dynamics and the firm's assessment of industry trends.
Despite the near-term challenges, Needham expressed confidence in Skechers' long-term prospects. The firm concluded that Skechers' core strengths could eventually lead to global market share gains. However, they suggest that investors might find a more favorable opportunity to invest in the company's stock further down the road.
In other recent news, Skechers USA Inc (NYSE:SKX). has reported a robust performance in the third quarter of 2024, with record sales reaching $2.35 billion, a 16% increase from the previous year. Earnings per diluted share also saw a significant rise of 35% to $1.26.
The growth of the company was primarily driven by a 21% surge in wholesale operations and a 9.6% uptick in Direct-to-Consumer sales. Despite facing regional challenges, particularly in China, Skechers saw substantial growth in international markets, which now account for 61% of total revenue.
These recent developments also include the company's projection of full-year 2024 sales to fall between $8.925 billion and $8.975 billion. Earnings per diluted share for 2024 are expected to be in the range of $4.20 to $4.25. Skechers' ambition is to reach $10 billion in sales by 2026. However, the company experienced a 5.7% decline in sales in China due to macroeconomic challenges and a slight decrease in gross margin to 52.1%.
The company's performance in the EMEA and India regions was strong, with sales increasing by 30% and 24%, respectively. Despite the challenges, the company successfully diversified geographic risks and saw robust growth in new product categories. Skechers ended the quarter with a strong liquidity position, with $1.6 billion in cash and $2.42 billion in total liquidity.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Needham's analysis of Skechers USA (NYSE:SKX). Despite the near-term challenges highlighted by Needham, Skechers' financials show some positive indicators. The company's revenue growth of 10.1% over the last twelve months and a strong quarterly growth of 15.94% in Q3 2024 demonstrate its ability to expand sales even in challenging market conditions.
Skechers' P/E ratio of 14.82 suggests the stock may be undervalued relative to its earnings, especially considering its PEG ratio of 0.76, which indicates the company is trading at a low P/E ratio relative to its near-term earnings growth. This aligns with one of the InvestingPro Tips, potentially offering a counterpoint to Needham's cautious stance.
Another InvestingPro Tip notes that Skechers operates with a moderate level of debt, which could provide financial flexibility as it navigates the industry-wide challenges mentioned in the article. Additionally, the company's liquid assets exceeding short-term obligations suggest a strong financial position, which may help Skechers weather the near-term headwinds identified by Needham.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Skechers, providing a deeper understanding of the company's financial health and market position.
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