Skechers: Citigroup Downgraded the Stock to ‘Neutral’



Citigroup downgraded Skechers to “neutral”

On October 2, Skechers (SKX) shares fell ~2% after Citigroup downgraded the stock to “neutral” from “buy” due to the limited near-term upside. Analyst Kate McShane thinks that weakness in the company’s domestic wholesale business and risks associated with rising SG&A (selling, general, and administrative) expenses despite the weak top line limits any near-term upside.

The company’s domestic wholesale business fell 7% YoY (year-over-year) during the second quarter, which the company reported on July 19. The SG&A expenses rose 19.7% during the quarter—more than the 10.6% YoY increase in the company’s top line.

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McShane also lowered her EPS expectations for 2018 and 2019. Skechers’ SG&A expenses continue to increase as the company invests in international markets. McShane also cut the company’s target price to $30 from $35. Currently, the company has an average target price of $32, which reflects an upside of 20% to the closing prices on October 2.

Analysts are turning bearish on Skechers

Citigroup’s downgrade is the second downgrade for Skechers in the past 15 days. Cowen and Company downgraded Skechers on September 20. Analyst John Kernan downgraded the company to “market perform” from “outperform” due to inventory pressure, slowing sales, and currency headwinds.

Kernan also noted that Skechers’ inventory turnover was at the lowest level in ten years. The company’s sales slowed down in its stores and online. The stronger dollar will likely have a negative impact on Skechers’ sales by 3.3%–4.3%, which could impact the bottom line by $0.13–$0.18.

Skechers is covered by 13 Wall Street analysts. They rate the stock as a 2.4 on a scale of one (strong buy) to five (sell).


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