Cowen Downgrades Skechers Says Shoemaker Faces Forex Inventory Pressures

Skechers USA Inc (NYSE: SKX) shares are down 27 percent year-to-date, but given the shoemaker's large valuation gap to peers, Cowen anticipates additional declines.

The Analyst

Cowen analyst John Kernan downgraded Skechers from Outperform to Market Perform and cut the price target from $32 to $28.

The Thesis

Over the last year, Skechers has suffered a 20-percent drop in desktop traffic and 14-percent drop in mobile, according to ComScore, Kernan said in the downgrade note. (See his track record here.)

Company-owned stores in North America have posted negative quarter-to-date same-store sales, the analyst said.

“We think this poses further margin risk given SG&A expenses associated with mid-single-digit growth in the domestic store base,” Kernan said. “Our contacts suggest that FILA is gaining significant space at Kohl's Corporation (NYSE: KSS) and within the family footwear channel which is pressuring SKX's casual men's and women's business.”

At the same time, inventory turn has struck its lowest level in more than a decade, while days of inventory on hand sits at an all-time high, he said. Although mix shifts to international wholesale and owned retail continue to bolster gross margins, the analyst said he remains concerned that a moderating U.S. wholesale business and “less robust product cycle” could pressure the metric.

Cowen expects a forex headwind to sales of 3.3 percent to 4.3 percent. That, in turn, could shave 13-18 cents off the bottom line.

“Skechers does not hedge its FX exposure and the company has potentially more emerging market FX exposure than any company we cover given the distributor, subsidiary and JV structure of its international business."