Coronavirus Rampage Continues For Skechers, Guidance Withdrawn

Skechers U.S.A., Inc. (NYSE:SKX) , provided an update on the coronavirus outbreak, stating that it is temporarily closing its company-owned retail stores across North America as well as some parts of Europe. The shutdown is scheduled to last till Mar 28. Earlier, Skechers had announced closures of company-owned and third-party stores in various gravely-impacted international markets.

In yesterday’s release, the company withdrew its recently-provided guidance for first-quarter fiscal 2020 considering the current situation and its unpredictable impact on results. During fourth-quarter earnings call, management expected net sales in the band of $1.400-$1.425 billion for first-quarter 2020. Earnings per share were envisioned in the range of 70-75 cents. However, the company has withdrawn these forecasts.

We note that rising concerns related to the COVID-19 pandemic have disrupted economic activities globally. The crippling effect of the outbreak led to supply-chain disruptions, slowdown in production activities and reduced demand for several commodities. In the view of implementation of safety measures and drop in store footfall, companies are temporarily shutting their brick-and-mortar stores, curtailing work hours and operating in shifts or permitting employees to work remotely. The deadly virus has infected more than 190,000 people worldwide and death toll has crossed 7,500.

Recently, other footwear players that closed stores due to coronavirus outbreak are Crocs, Inc. (NASDAQ:CROX) , NIKE, Inc. (NYSE:NKE) , and Under Armour, Inc. (NYSE:UAA) among others.

Coming back to Skechers, the company has been grappling with concerns related to escalating operating expenses. Also, rising selling, general and administrative expenses due to higher advertising costs might hurt the company's margin and the bottom line. In the fourth quarter of 2019, SG&A expenses rose 25.5%. Additional spending in relation to its direct-to-consumer business and company-owned Skechers stores are also bumping up costs.

Nevertheless, the company is undertaking investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. We believe that strength in Skechers’ e-commerce business is likely to continue, given the technology investments.

We note that shares of this Zacks Rank #3 (Neutral) company have slumped 42% in the past six months compared with the industry’s decline of 20.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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