Piper Sandler's Take On Apparel Stocks - Skechers Gets Upgraded, VFC Downgraded

Piper Sandler analyst Abbie Zvejnieks upgraded the shares of Skechers U.S.A., Inc. SKX from Neutral to Overweight and raised the price target from $54 to $59.

Despite a challenging U.S. wholesale environment, Skechers' DTC trends indicate strong underlying demand, which should lead to restocking as the channel clears, said the analyst.

The analyst believes that the stock's negative reaction this past week is in part due to commentary around e-commerce slowing, but the analyst is lapping easier compares in owned stores as stores were significantly under-inventoried in 2H22.

The analyst is encouraged by solid commentary on both China and Europe, and sees a strong international runway ahead with opportunities in India, South-East Asia, and South America.

The analyst believes Skechers will exit the year with a higher gross margin compared to 2019, including a significant y/y benefit from lapping higher freight costs.

The analyst also slightly increased estimates as a reflection of a more moderate recovery in U.S. wholesale but higher international growth in the 2H.

The analyst downgraded the shares of V.F. Corp VFC from Overweight to Neutral and lowered the price target from $28 to $20.

Though green shoots were visible on new products such as Knu Skool, the analyst doesn't think these new styles are enough to fill the gap left by weakness in core classics. 

Congestion within the broader U.S. wholesale channel will limit the brand turnaround in the near term, said the analyst.

The unfavorable ruling on the Timberland tax credit also eliminates a positive catalyst as it relates to decreasing leverage, added the analyst.

Price Action: SKX shares are trading lower by 1.46% at $46.69 and VFC shares are trading lower by 4.87% at $17.27 on the last check Monday.