Equity Report 24.08.2021

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SKECHERS

Based in California, Skechers Inc designs, markets and distributes footwear for men, women and children, and performance footwear (sport atlhelic products) for men and women worldwide. SKX operates under 3 segments:
– International wholesale
– Retail
– Domestic wholesale
SKX sales were up by 12% y/y in 2019 to $5.2 Bn, as the firm keeps maintaining its growth at a faster pace, with its international division (up 20% y/y). A considerable growth driver for the firm, expanding its footwear distribution in emerging markets such as Mexico and India, by setting up new stores in the next years. In addition, by its marketing campaign (sports professionals, influencers), the firm was able to reach new customers and expand its product distribution towards third party-retailers and e-commerce platforms.

With record revenues during the FY19, this year, the footwear designer SKX, with its latest earnings quarter (Q2-20), showed a retailing business impacted by the sanitary crisis which shut down several outlets (mostly distributors, licensees and franchises) and production facilities worldwide due to governments implementing quarantine and self distancing measures, especially in the United States, accounting for 42% of the business segment. Overall, revenue were down 38% y/y reaching $730 M (vs $1.15 Bn prior year), impacted by a plunge in its domestic wholesale (down 36% y/y), international wholesale (down 30% y/y) and retailling (down 47% y/y). The firm later recovered in April-June 2020. First driven by China, with most of the stores reopened, sales grew by 11.5%. Second, an alternative to physical outlets, with SKX owned e-commerce business ongoing a boost in revenue, up by 4.2x (+43% in China).

To keep this momentum the firm conduct most of its financial resources to intensify investments towards its digital capabilities with 3 initiatives: an online shopping platform, a mobile app and a loyalty program, which was first implemented in the US and a plans to expand into other countries. In addition, SKX made several adjustments by non-essential expenditures such as non-digital spending and non discretionary spending (business travels) in order to limit the deterioration of its operating and net margins (respectively -8.93% and -9.3% in Q2-20). Expectation for Q3-20 and Q4-20: The firm is set to recover from this sanitary crisis, as many countries within its scope of operation can pursue business as usual and improve both of its operating and net margin at the end of the year.

SHARE PRICE – Since January 2020, the stock dropped 20%. The share price (21/10/2020) closed at $34.30 per share.
A stock rallied in Q2-20 (June-20) driven by China’s recovery and e-commerce boost. It will continue to move at its own pace, with SKX increasing investments on its digital capabilities, putting more focus on online shopping to improve its customer experience, with a plan to expand its 3 features to other markets worldwide. Shares expectations: ~$40 per shares.

Written on 22/10/2020

 

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