Cowen raised its rating on Skechers to “Outperform” from “Market Perform” as channel checks show the brand’s value proposition resonates with customers, and a survey shows Skechers has gained preference in the casual/lifestyle footwear category from Nike and Adidas.

In a note, Cowen’s lead analyst in the space, John Kernan, wrote that according to the company’s Proprietary Consumer Tracker Survey, when respondents were asked, “If you were to buy sneakers specifically for casual, your first choice would be?,” an average of 18.6 percent of respondents in 2022 said that Skechers was their preferred sneaker for casual wear, second only to Nike, at 25 percent and Adidas, at 10 percent.

Skechers’ preference share modestly rose through 2022 as the company averaged 17.9 percent through the first six months of the year and 19.3 percent preference share through the last six months. 

Kernan noted that Skechers gained the most preference share in the two wealthiest income demographics tracked—those earning between $100,000 to $149,999 and respondents earning more than $150,000.

“The company looks to have taken preference from a combination of Nike and Adidas, which appears to indicate that Skechers’ comfort and value-oriented positioning is resonating with consumers in a macroeconomic environment where discretionary spending is under increasing pressure. The 2022 preference share trends also indicate that Skechers’ top-line momentum could be partially driven by customers looking to trade down to more affordable casual footwear,” wrote Kernan.

Cowen forecasted Skechers in the current fiscal year would see wholesale growth of 12.6 percent year-over-year, a slowdown from 19.5 percent expected to be reported in FY22. International DTC growth is expected to expand 10.9 percent year-over-year compared to 11.1 percent year-over-year growth for FY22.

Kernan said the assumed decelerations could be conservative, with China and the EMEA potentially outperforming on the upside. The analyst said the EMEA continues to perform better than expected, with sales through the first nine months of FY22 up 34 percent year-over-year on a reported basis despite 1,000 basis points of translational FX headwinds. The re-opening of the Chinese economy was cited as a potential growth catalyst for the overall international wholesale channel, as China makes up 16 percent of SKX’s sales mix.

Kernan further believes Wall Street’s consensus estimate underestimates Skechers’ supply chain recovery. Kernan wrote, “Our FY23 gross margin estimate of 48.4 percent is +70bps above consensus of 47.7 percent, as supply chain normalization and freight costs should be a 2H:23 gross margin tailwind.”

Cowen also raised its price target on Skechers to $65.00 from $48.00. Skechers closed Thursday on the New York Stock Exchange at $47.89, off 22 cents. The stock’s 52-week range is between $31.28 and $49.89.

Photo courtesy Skechers