Skechers stock slips 23% on weak guidance

Shares of the footwear giant Skechers plummeted more than 20% in the extended hours of trading due to weak guidance. The company’s earnings also failed to meet analyst estimates slipping nearly 24% over prior year, hurt mainly due to forex impacts and legal costs. However, topline improved 10% which was in line with the Street expectations. Same-store sales increased 4.5% aided by double-digit growth from international stores, while last quarter the company recorded 9.5% growth.

International business continues to be the key driver for Skechers with International wholesale segment saw 24.9% growth followed by a 12.8% jump from its Company-owned global retail division. Selling, General  & Administrative (SG&A) expenses jumped 19.7% in the quarter touching $484.9 million, while G&A expenses rose about 22%. The increase in costs was primarily due to increased advertising expenses as the company expands its global footprint including China. However, the spike in expenses is a concern for investors as it would impact margins.

Even though the footwear design and development is done in-house, it’s worth noting the entire footwear range is manufactured in factories located in China and Vietnam by contractors. The brewing trade war between China and the US could play spoilsport to the growth of Skechers.

With China being the largest exporter of footwear to the US which was worth $14 billion last year, many companies are keeping a close tab on the ongoing development between the US and its trading partners. With no signs of trade wars getting over, the list of goods which fall under the tariffs levied by both the countries could grow. If footwear also comes under the list, Skechers and its peers would be on tenterhooks.

Skechers forecasts its third-quarter sales to come in the range of $1.200 billion to $1.225 billion and earnings to be between $0.50 and $0.55 per share, far below the analyst consensus. The footwear giant’s stock is down more than 12% in 2018, even though it rose 17% in the last 12 months.