Store Openings And Sports Expansions Will Broaden Reach Despite Risks

Key Takeaways

• Strategic expansion into new sports categories and store growth to drive global revenue, leveraging broader distribution networks.
  
• Collaborations and technology-driven offerings may increase brand appeal, enhancing sales and margins with value-added products.
  
• Challenging macroeconomic conditions, currency impacts, tax changes, tariffs, and inventory issues could pressure Skechers’ margins and profitability.

Catalysts

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

• Skechers is strategically expanding its product offerings into new sports categories such as soccer, basketball, and cricket, which is expected to provide significant future revenue growth as these markets develop globally.
  
• The company plans to open 180 to 200 new company-owned stores in 2025, along with expanding its distribution centers in key regions like the United States, Europe, and China. This expansion aims to increase its global reach and drive revenue growth through a broader and more efficient distribution network.
  
• Collaborations and unique partnerships with well-known brands and personalities, like John Deere, Martha Stewart, and Snoop Dogg, are expected to enhance Skechers' product appeal and brand presence, potentially leading to increased sales and higher gross margins due to higher-value offerings.
  
• The focus on signature technologies such as Skechers Hands Free Slip-ins and Skechers Arch Fit is aimed at consolidating Skechers’ position in the comfort and technology-driven market, which may help in maintaining or slightly increasing gross margins through premium pricing on differentiated offerings.
  
• Skechers is decreasing its operating expenses relative to sales, shown by a 70 basis point reduction year-over-year, which, combined with a strong product lineup and distribution expansion, may lead to stable or improved operating margins, boosting earnings despite external economic pressures such as foreign exchange rates and tariffs.

Skechers U.S.A Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Skechers U.S.A compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Skechers U.S.A's revenue will grow by 5.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 7.1% today to 5.2% in 3 years time.
• The bearish analysts expect earnings to reach $546.3 million (and earnings per share of $3.75) by about April 2028, down from $639.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.6x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the US Luxury industry at 15.1x.
• 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 8.16%, as per the Simply Wall St company report.

Skechers U.S.A Future Earnings Per Share Growth

Risks

• The challenging macroeconomic environment in China, leading to a decline in sales, poses a risk to Skechers' international revenue and overall earnings.
  
• Unfavorable foreign currency exchange rates could continue to impact Skechers' net sales and lead to volatility in reported earnings per share throughout 2025.
  
• The implementation of global minimum tax regulations is anticipated to elevate Skechers’ effective tax rate, which would negatively impact net earnings.
  
• New U.S. tariffs on goods from China add uncertainty and potential cost pressures, which could squeeze margins and lower profitability.
  
• Inventory concerns, particularly with elevated in-transit inventory due to disruptions like the Suez Canal closure, could lead to inefficiencies and affect net margins.

Valuation

• The assumed bearish price target for Skechers U.S.A is $57.03, which represents one standard deviation below the consensus price target of $68.14. This valuation is based on what can be assumed as the expectations of Skechers U.S.A's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• 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 $50.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $10.6 billion, earnings will come to $546.3 million, and it would be trading on a PE ratio of 18.6x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $48.88, the bearish analyst price target of $57.03 is 14.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.