Needham starts Skechers coverage at Hold, Foot Locker at Buy

November 23, 2024 12:23 AM AEDT | By Investing

Google News:

Needham starts Skechers coverage at Hold, Foot Locker at Buy

Recent News

What are next big copper projects? UBS tells when equipment makers cou...

EUR/USD poised to rack up more gains as ECB and Fed rate paths set to...

Carney launches ‘One Canadian Economy’ Act to unify trade, approvals

Trump signs orders to enhance drone defenses, support supersonic trave...

Investing.com -- Needham&Co. began coverage of Foot Locker (NYSE:FL) and Skechers USA Inc (NYSE:SKX) stocks on Friday, assigning them Buy and Hold ratings, respectively.

For Skechers, the investment firm notes that the footwear maker is facing near-term industry challenges, particularly in the China market, which has been volatile with a significant growth deceleration.

After seeing its growth peak during the fourth quarter, Skechers experienced three consecutive quarters of declining quarter-over-quarter growth, including a 6% drop in the most recent quarter.

“It appears to be more of a macro issue than a Skechers-specific one, but regardless, SKX has the largest sales exposure to China in our coverage, at 15% of consolidated revenue last year,” Needham analyst Tom Nikic said.

“So, if this market remains challenging, it will likely be a headwind for the company overall,” he added.

Skechers' gross margin, a key earnings driver, has also seen a decline, with a year-over-year decrease of 80 basis points in the third quarter. This shift from tailwinds to headwinds in freight, pricing, and channel mix, combined with the company’s stance on growth investment, is expected to limit near-term margin expansion.

The firm's forecast for Skechers' earnings per share (EPS) stands at $4.63, below the market consensus of $4.95.

Foot Locker, on the other hand, is viewed as an attractive earnings-recovery story for 2025. The company is expected to benefit from a renewed relationship with Nike (NYSE:NKE), momentum in non-Nike brands, and leveraging recent investments in selling, general, and administrative expenses (SG&A).

Needham anticipates a fundamental improvement in Foot Locker's performance, driven by these factors and a merchandise margin recovery.

“While we believe FL is in the midst of a post-back-to-school lull, we believe trends may reaccelerate post-Thanksgiving, and we're encouraged by a recent consumer survey that showed high consumer interest in sneaker this Holiday season,” Nikic said.

The firm highlighted the potential for Foot Locker's positive comp growth in the coming years, supported by Nike's decision to increase allocations of high-demand products to the retailer starting in the fourth quarter of 2024. Additionally, the retailer's tech investments are expected to taper off, setting the stage for meaningful margin expansion in fiscal year 2025.

This article first appeared in Investing.com

Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (“Kalkine Media, we or us”), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary.
The content published on Kalkine Media also includes feeds sourced from third-party providers. Kalkine does not assert any ownership rights over the content provided by these third-party sources. The inclusion of such feeds on the Website is for informational purposes only. Kalkine does not guarantee the accuracy, completeness, or reliability of the content obtained from third-party feeds. Furthermore, Kalkine Media shall not be held liable for any errors, omissions, or inaccuracies in the content obtained from third-party feeds, nor for any damages or losses arising from the use of such content.
Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyrighted to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have made reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.
This disclaimer is subject to change without notice. Users are advised to review this disclaimer periodically for any updates or modifications.