Celebrity Partnerships With John Deere And Snoop Dogg Will Drive Global Brand Recognition

Key Takeaways

• Expansion of distribution centers and direct-to-consumer efforts are expected to improve efficiency, revenue growth, and margins through higher retail price points.
  
• Strategic diversification into new sport categories and high-profile partnerships aim to boost revenue through product differentiation and brand recognition.
  
• Macroeconomic challenges, strong USD, tariffs, and tax regulations could pressure Skechers' margins, revenue, and international growth, especially in China and Europe.

Catalysts

Designs, develops, and markets footwear, apparel, and accessories worldwide.

• Skechers plans to expand its distribution centers in the United States, Europe, and China, which could lead to increased efficiency and support revenue growth as they manage expected demand in these regions.
  
• The company is focusing on growing its direct-to-consumer business, with new interactive performance stores in Canada and expanding their retail footprint, which may enhance both revenue and margins by capturing higher retail price points.
  
• Skechers is strategically entering and expanding in new sport categories, such as basketball, soccer, and cricket, with endorsements from high-profile athletes to drive future revenue growth through product diversification and increased brand recognition.
  
• Partnerships with global brands and celebrities like John Deere, Martha Stewart, and Snoop Dogg, along with new product innovations such as Skechers Hands Free Slip-ins and Arch Fit, are aimed at driving product differentiation and revenue growth.
  
• Skechers is enhancing its global marketing campaigns, including significant promotions during high-profile events like the Super Bowl, which could lead to increased brand visibility, customer acquisition, and ultimately, future revenue growth.

Skechers U.S.A Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Skechers U.S.A's revenue will grow by 9.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 8.1% in 3 years time.
• Analysts expect earnings to reach $950.2 million (and earnings per share of $6.5) by about March 2028, up from $639.5 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $1.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.8x on those 2028 earnings, up from 13.4x today. This future PE is lower than the current PE for the US Luxury industry at 16.6x.
• Analysts expect the number of shares outstanding to decline by 2.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.06%, as per the Simply Wall St company report.

Skechers U.S.A Future Earnings Per Share Growth

Risks

• The strengthening of the U.S. dollar and unfavorable foreign currency exchange rates are significantly impacting Skechers' reported sales and earnings, which could continue to pressure revenue and net margins.
  
• The ongoing macroeconomic challenges in China, including a challenging retail environment, are contributing to declines in sales in the region, potentially impacting Skechers' international revenue growth.
  
• New U.S. tariffs on goods from China could add cost pressures that may not be fully mitigated, potentially affecting net margins and operating income.
  
• Elevated inventory levels, especially in-transit inventory in Europe due to prolonged shipping times, could lead to increased costs and negatively affect cash flows if not managed effectively.
  
• Global minimum tax regulations are expected to elevate Skechers' effective tax rate, likely reducing net earnings and the company's ability to maintain current profit margins.

Valuation

• The analysts have a consensus price target of $79.849 for Skechers U.S.A based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $94.0, and the most bearish reporting a price target of just $65.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.7 billion, earnings will come to $950.2 million, and it would be trading on a PE ratio of 14.8x, assuming you use a discount rate of 8.1%.
• Given the current share price of $57.35, the analyst price target of $79.85 is 28.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.