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The Ratings Game: Skechers is still heading toward $10 billion in revenue despite supply chain problems

Skechers Inc. remains on track to hit $10 billion in revenue by 2025 or 2026 despite missing Street expectations for the third quarter, according to UBS analysts.

“The key takeaway from Skechers’ 3Q21 report is demand remains robust for the Skechers brand,” analysts led by Jay Sole wrote.

“Supply chain challenges negatively affected Q3 results, yet the impact was less than expected due to strong demand and the company’s operational excellence.”

All of the supply chain challenges that Skechers
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executives highlighted are temporary speed bumps on the path to growth.

“The market has been worried about supply chain issues, but we expect these get resolved over the near-term and Skechers will return to beating and raising once they do,” UBS said.

UBS rates Skechers stock buy with a $70 price target.

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Skechers reported last week third-quarter net income of $103.1 million, or 66 cents per share, up from $64.3 million, or 41 cents per share, last year. Sales reached a record $1.551 billion, up from $1.301 billion the previous year.

The FactSet consensus was for EPS of 71 cents and sales of $1.623 billion.

For the year, Skechers is guided for sales between $6.15 billion and $6.20 billion, and earnings per share between $2.45 and $2.50. The FactSet consensus is for sales of $6.19 billion and EPS of $2.54.

The company says that unlike other consumer businesses like Nike Inc.
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or Yeti Inc.
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+1.56%
,
Skechers didn’t have as many problems with manufacturing in Vietnam since the majority of its production is not in the southern part of the country.

“The more disruptive issues have been widespread shipping container shortages, port congestion and last mile transportation delays,” Skechers Chief Financial Officer John Vandemore said on the late Thursday earnings call, according to a FactSet transcript.

“The combination of these factors negatively impacted Skechers’ sales in the third quarter. This is evident in our quarter-end inventory balance, which includes an incremental $218 million in in-transit inventory, a year-over-year increase of over 140%.”

Wedbush analysts are cautious about the supply chain impact on margins.

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“Product that got pushed from Q3 to Q4 isn’t necessarily a problem because it at least makes it to market in time for the holidays,” analysts led by Tom Nikic said.

“However, anything that gets pushed out to Q1 would miss this key selling season, likely necessitating margin eroding discounts.”

Wedbush rates Skechers stock neutral with a $47 price target, up from $43.

Cowen is also setting its sights on 2022 and the impact that these hurdles will have.

“The lingering uncertainty of the pandemic and the unknown duration of supply chain disruption will likely hold management to a conservative posture when setting initial FY22 expectations despite widespread demand for the brand,” analysts led by John Kernan wrote.

Cowen rates Skechers stock market perform with a $57 price target.

Skechers stock has slumped 11.4% over the past three months, but shares have gained 32.3% for the year to date. Over the past month, the stock has rallied 12%.

The S&P 500 index
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+0.08%

has gained 22.7% for 2021 so far.

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