A weak update regarding China’s market performance impacted Skechers’ stock value.
While the overall stock market experienced gains due to interest rate cuts, Skechers (SKX -9.62%), a casual footwear company, saw its stock decline after reporting weaker-than-expected sales in China at an industry conference. The stock closed down 9.6% following this announcement.
Ongoing Challenges in China
Skechers is one of several U.S. consumer discretionary companies facing difficulties in China, joining Nike, Apple, and Starbucks, which have all reported underperformance in the Chinese market. At the Wells Fargo Consumer Conference, Skechers management acknowledged significant challenges in certain Asian markets, particularly highlighting "severe consumer discretionary pressures" in China. The company indicated that the situation was "worse than anticipated" and mentioned efforts to reset its strategy.
Although specific guidance on the weaker market conditions was not provided, investors inferred that second-half financial results could fall short of expectations. China constitutes approximately 15% of Skechers’ sales, and previous indications of challenges were mentioned in the company’s second-quarter earnings report, citing underwhelming results from the June 18 shopping holiday.
Future Outlook for Skechers
Considering that China represents just 15% of Skechers’ revenue, the market reaction might be disproportionate. However, the lack of updated guidance could be leading investors to anticipate a significant negative impact.
Despite these challenges, Skechers has performed relatively well in a tough footwear market, with a 7% revenue increase in Q2, potentially reassuring investors. Given that the difficulties in China are not exclusive to Skechers, there’s no apparent reason for a long-term negative outlook on the stock.
Disclosure
Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in Nike, Starbucks, and Wells Fargo. The Motley Fool has positions in and recommends Apple, Nike, Skechers U.S.A., and Starbucks. The Motley Fool adheres to a disclosure policy.
