Williams Trading lowered its stock rating on VF Corp. to “Sell” due partly to unexpected weakening at The North Face. Lead analyst Sam Poser also reiterated his “Buy” rating and raised his price targets on Deckers Outdoor and Skechers USA.
On the VF downgrade, Poser wrote that demand for Timberland “remains soft” and believes the company is adversely impacted by early promotional activity on its iconic wheat boot and late shipments.
He said Vans’ turnaround is “taking longer than expected,” with Converse stepping up as a stronger competitor.
The surprise has been The North Face, which appears to be “losing steam,” with channel checks indicating the brand has become “more promotional than it has been in some time.”
Poser wrote, “It continues to be clear to us that VFC, except for the three emerging brands—Altra, Smart Wool and Icebreaker—that management leaves alone, are growing at over 30 percent a year, has focused too much on short term growth and risks damaging the brands.”
Poser also trimmed his price target on VF from $26 to $25. On Monday, VF closed at $30.48, up $1.14, on the New York Stock Exchange.
Poser raised his price target on Deckers to $525 from $432 to align with higher estimates. Shares of Deckers closed Monday at $422.29, up $4.29, in over-the-counter trading.
Poser noted that Deckers’ results for its fiscal second quarter, ended September 30, exceeded consensus estimates and proprietary checks continue to indicate momentum has continued for Ugg and Hoka to support another quarterly beat. He noted that Deckers’ management raised Hoka’s annual revenue guidance from 40 percent growth to 50 percent, but Poser said Hoka’s guidance would likely still prove “conservative.”
Poser also wrote that although Deckers’ management reduced Ugg’s revenue guidance, he is confident that at-once fill-in orders would support better than expected Ugg wholesale results for the holiday quarter.
Williams Trading raised its estimates on Skechers and price target to $57 from $47. Shares of Skechers closed at $48.76, up $2.13, on the New York Stock Exchange.
Poser wrote that meetings with Skechers’ management and channel checks gave him confidence that SKX could deliver fourth-quarter results within its guidance when it reports on February 2.
“Demand for SKX across merchandise categories, gender and geographies remain robust,” wrote Poser. “New Slip-ins technology, which is being applied across merchandise categories, is being met with very positive response from both consumers and retailers. Checks further indicate that Kid’s shoes are beginning to perform very well.”
He added that Skechers appears well-positioned to see a sales “breakout” during the second quarter of 2023 and noted that retailers bought conservatively for spring 2023 given the uncertain climate and could have adequate inventory to meet demand by the second quarter.
Poser wrote, “At that time, those retailers will look to brands that have goods that are selling, and that can deliver orders for those goods, quickly, on-time, and complete. Skechers has the most efficient supply chain in our coverage and has brought in a large amount of Spring 2023 orders early, and will be in a position to meet the increased demand.”
