Analyst: Skechers Could Take Market Share As Value Rules in Challenging Retail Backdrop
Despite tariff risks, Skechers USA Inc. has “solid potential” to take market share as a value brand.
That’s according to UBS softlines analyst Jay Sole, who last week concluded in a research note that companies in his coverage universe, such as Steve Madden Ltd. and Nike Inc., probably will begin to feel the tariff impact in the third quarter of 2025.
“We assume companies hold enough inventory in their U.S. warehouses to get through the second quarter [of the current fiscal year],” Sole said.
He also concluded that the tariff impact will be felt on both the revenue and gross margin fronts, with retailers feeling the impact from tariffs when they have to pass along price increases from vendors. And while factories will share in some of the cost increases, footwear firms will have a harder time than apparel companies because it will be harder for them to migrate shoe manufacturing to lower cost geographies. “We do not see a realistic scenario where either apparel or footwear manufacturing returns to the United States,” Sole said.
Sole said on Monday that while the U.S. tariff plans could result in Skechers lowering its fiscal year 2025 earnings per share guidance, he is maintaining his “Buy” rating on shares of Skechers stock.
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Despite the high manufacturing exposure to China, Sole sees some positive signals via UBS’ proprietary data. While Skechers was more promotional in the first quarter, U.S. direct-to-consumers sales also appeared to increase during the three-month period.
Moreover, growth rates for the brand appeared “solid in international markets,” Sole wrote in Monday’s research note. “We see solid potential for Skechers to take market share as a value brand in a challenging consumer spending backdrop,” he added.
The UBS analyst sees international markets as a continued driver of growth. He cited fiscal year 2023 when 62 percent of sales were from overseas, which Sole expects to rise to 67 percent by Fiscal Year 2026. And he said the brand’s e-commerce business would likely help offset potential disruption among its U.S. wholesale partners.
Another contributing factor for the brand’s growth centers on athleisure. Sole is forecasting 6.5 percent global growth for the sector, with developing markets contributing a “disproportionate share” of the gains.
“While the pandemic negatively impacted fiscal year 2020 sales, we think it boosted the trend toward more casual and comfortable dress,” he concluded. “We think this is a good thing for Skechers since it is known for its casual, comfortable, and affordable footwear.”
According to the UBS analyst, Skechers is the world’s third largest footwear brand that is also an under-appreciated growth stock. He expects the brand’s sales, EBIT (earnings before interest and taxes) margin, and earnings to “grow much faster than the market expects.”
Looking ahead to the first quarter ended March 31, UBS forecasts net income of 26 million on net sales of $2.44 billion. That compares with year ago figures of net income of 34 million on net sales of $2.25 billion. Adjusted diluted earnings per share is expected at $1.15 versus $1.33 in the same year-ago quarter. Impacting the quarterly results are persistent softness in China and a slightly lower gross margin due to higher promotional activity, freight pressure and unfavorable foreign exchange in some markets.
The company will report first quarter results on April 24.
In 2024, the company posted a 17.2 percent gain in net earnings for the year to $639.5 million, or $4.16 a diluted share, on a net sales gain of 12.1 percent to $8.97 billion.
