2 Reasons Why Skechers Is No Longer A Buy At Citi

Shares of lifestyle and performance footwear maker Skechers USA Inc SKX are down nearly 30 percent since the start of 2018, and investors may want to reconsider buying the stock, as it has limited near-term upside, according to Citi. 

The Analyst

Citi's Kate McShane downgraded Skechers from Buy to Neutral.

The Thesis

Skechers' ongoing concerns are well-known to the market and a bullish stance on the stock can no longer be justified for two reasons, McShane said in the downgrade note. (See her track record here.) 

They are:

• Concerns related to domestic wholesale growth.
• Risks associated with higher SG&A at a time when the top line is weakening.

The two concerns could extend beyond the back half of 2018, which implies the potential for less near-term upside than previously expected, the analyst said.

The footwear maker made it clear it wants to prioritize long-term growth investments, including establishing international markets at the expense of short-term operating margin expansion, McShane said. 

The bull case could be made again if Skechers shows signs of SG&A leverage or U.S. trends show a notable acceleration, she said.

Skechers' stock does look cheap at 14 times estimated 2019 EPS, which is a discount to its small- and mid-cap footwear peers at 17 times, the analyst said — but the stock is also trading in-line with its three-year average.  

Price Action

Skechers shares were down 1.57 percent at $26.88 at the time of publication Tuesday. 

Related Links:

Cowen Downgrades Skechers, Says Shoemaker Faces Forex, Inventory Pressures

After Skechers Issues Weak Guidance, Wells Fargo Predicts First Annual EPS Decline Since 2011