Skechers Drops As New Styles Seen Being 'Crowded Out' By Competition

Shares of Skechers USA (SKX) tumbled in morning trading after the stock was downgraded by an analyst who said that the company's "opportunity for traction" with new styles is being "crowded out" by competition from Nike (NKE), Under Armour (UA, UAA) and Adidas (ADDYY).

'CROWDED' MARKET: In a note to clients on Wednesday morning, Susquehanna analyst Sam Poser downgraded the stock two notches to Negative from Positive, saying that retailers are allocating more resources to athletic footwear, but that checks showed that, with the exception of Energy Lights, Skechers' footwear lines may not receive the open-to-buy dollars needed to meet overall revenue expectations. According to industry contacts, Posner said "hot brands" Adidas and Puma are receiving significantly larger allocations, while Nike is "commanding its usual allotment of incremental dollars planned" and several retailers are planning incremental dollars for Under Armour. Skechers' other new platforms, such as You and Street, are "promising, but unproven," Posner said, and retailers are "extremely reluctant to allocate OTB to Skechers' new platforms at the expense of proven, high growth products from Adidas, Nike and Puma."

DOMESTIC WHOLESALE: In February, Skechers reported fourth quarter revenue that beat analysts' expectations, though its earnings per share fell short of the consensus. At the time, COO David Weinberg said the quarterly growth was mostly the result of a 17.1% increase in its international wholesale business, led by China with an increase of 48.5%. Susquehanna's Posner said in this morning's note that he believes Skechers will face ongoing challenges in its domestic whole sale business, as proprietary checks indicate that initial sell-through and order-flow in the domestic wholesale business is "trending short of expectations." Posner noted that the company must grow domestic wholesale in order to avoid SG&A deleverage from its international investments. While he believes Q1 results will be "in line," Poser expects a domestic wholesale shortfall for the rest of the fiscal year. Posner cut his U.S. wholesale sales growth forecasts for fiscal 2017 and 2018 to 2.5% and 4%, respectively, from 7% and 7.6%, respectively.

PRICE ACTION: Skechers is down about 4% to $28.72 in morning trading. Shares are up about 17% year-to-date.

OTHERS TO WATCH: Other casual apparel and footwear makers include Columbia Sportswear (COLM), Wolverine World Wide (WWW) amd Deckers Brands (DECK).