2 Reasons Why Skechers Is No Longer A Buy At Citi

Shares of lifestyle and performance footwear maker Skechers USA Inc (NYSE: 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. 

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