Cowen Says The Big Sell-Off In Skechers Is A Buying Opportunity

Skechers USA Inc SKX reported an in-line EPS in its first quarter report while revenue topped estimates. The stock plummeted, however, as the company's second quarter guidance came in notably weak.

"Patient" investors should take advantage of the decline and be buyers of the stock, according to Cowen.

The Analyst

Cowen's John Kernan maintains an Outperform rating on Skechers' stock with a price target lowered from $46 to $41.

The Thesis

Skechers management offered an outlook that implies a "sharp" deceleration in the pace of sales due to a shift in the timing of shipments to key wholesale accounts, Kernan said in a note. Weather and distributor weakness seen in the middle east represents another "spoiler," but the silver bullet is the company's woes aren't product related. The company's guidance implies an uptick in gross margins, but below the 233 basis point increase seen in the first quarter.

The weather issues cited by Skechers will likely impact the entire shoe sector as a whole, Kernan wrote. Nevertheless, the company's "newness and innovation" will continue to be well received by wholesale partners and its owned retail operation, which supports the longer-term case for the company to achieve expectations calling for topline growth of 13 percent and the analyst's longer-term view of $3 in earnings potential.

Price Action

Shares of Skechers were trading lower by nearly 30 percent at $30.75 early Monday afternoon.

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Photo by Brett Hershman.