Investing.com

A Piper Sandler analyst has initiated coverage of Skechers with a Neutral rating and a price target of $65 per share, emphasizing the company's strengths in global reach and product innovation while expressing caution about near-term challenges.

The analyst describes Skechers as a "nimble operator" and the world's third-largest footwear brand, highlighting risks associated with China, inventory levels, and pricing pressures.

Piper Sandler commends Skechers for effectively driving demand through extended use cases and innovative products, pointing out successes in higher Average Selling Price (ASP) Comfort Technologies such as Arch Fit and Slip-Ins. The brand is also diversifying by investing in performance footwear, including the reintroduction of running shoes in specialty stores next spring.

However, Piper indicates that overall ASPs have faced pressure in recent quarters, driven by competition in hands-free and memory foam segments from lower-priced alternatives like Kizik. The analyst also identifies challenges in Skechers’ international markets, most notably China, which represents 14% of its sales and saw negative growth in Q3 2024, indicating a slow recovery ahead. Elevated inventory levels, including in-transit stock, contribute additional risks.

While wholesale has been a key driver of recent growth, there are concerns regarding sustainability due to a slowdown in direct-to-consumer sales.

Despite these challenges, Skechers has sustained gross margins at 53%, exceeding its five-year average, and is moving toward its long-term goal of 11-12% EBIT margins. The company remains committed to heavy marketing investments with a target of $10 billion in sales by 2026, reflecting a 6% compound annual growth rate.

Piper Sandler recognizes Skechers’ strategic strengths but maintains a cautious outlook for the short term due to elevated valuation metrics and varying earnings forecasts.