International Retail And DTC Expansion Will Foster Future Success

Key Takeaways

• International expansion and investment in retail and distribution are set to drive revenue growth, with international sales as a key engine.
  
• Focus on Comfort Technologies and direct-to-consumer channels could boost market share and improve margins through enhanced consumer engagement.
  
• Skechers faces margin pressures and growth challenges due to reliance on China, macroeconomic uncertainties, and increased operating expenses.

Catalysts

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

• Skechers' focus on international expansion, particularly in EMEA and Americas, and their heavy investment in retail store network and distribution efficiencies are positioned to drive revenue growth, with international sales being a key growth engine.
  
• The company is investing in innovative Comfort Technologies, such as Hands Free Slip-ins and Arch Fit, which have been well-received, suggesting potential for revenue enhancement and market share capture.
  
• Strategic partnerships with athletes and lifestyle marketing campaigns are likely to enhance brand visibility and consumer demand, potentially leading to increased sales and revenue growth.
  
• Expansion of direct-to-consumer (DTC) channels, with the opening of new stores and growth in e-commerce, is expected to improve margins and earnings by capturing a larger share of the consumer market directly.
  
• Distribution center expansions in the U.S., China, and Europe aim to optimize logistics and cost efficiency, which could positively affect net margins in the long run.

Skechers U.S.A Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Skechers U.S.A's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.0% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $664.3 million (and earnings per share of $4.78) by about May 2028, up from $635.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $951.4 million in earnings, and the most bearish expecting $421 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.2x on those 2028 earnings, up from 14.4x today. This future PE is greater than the current PE for the US Luxury industry at 15.6x.
• Analysts expect the number of shares outstanding to decline by 1.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.24%, as per the Simply Wall St company report.

Skechers U.S.A Future Earnings Per Share Growth

Risks

• Skechers faces uncertainty in the global trade environment and potential increases in tariffs, particularly with its heavy reliance on production in China, which could increase costs and impact gross margins.
  
• The macroeconomic uncertainty and waning consumer confidence could potentially slow down sales growth, impacting revenue.
  
• Challenges in the Chinese market, including a recent decline in sales, could affect the company's ability to grow in the APAC region and impact overall revenue.
  
• Increased operating expenses related to distribution and labor could pressure net margins, as these costs rise faster than sales growth.
  
• Foreign currency exchange rate fluctuations present a risk to earnings stability, potentially leading to volatile profit outcomes.

Valuation

• The analysts have a consensus price target of $63.928 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 $73.0, and the most bearish reporting a price target of just $59.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.5 billion, earnings will come to $664.3 million, and it would be trading on a PE ratio of 17.2x, assuming you use a discount rate of 8.2%.
• Given the current share price of $61.36, the analyst price target of $63.93 is 4.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.