We came across a bearish thesis on Skechers U.S.A., Inc. (SKX) on wallstreetbets Subreddit Page by Traditional-Year3847. In this article, we will summarize the bears’ thesis on SKX. Skechers U.S.A., Inc. (SKX)’s share was trading at $50.49 as of April 24th. SKX’s trailing and forward P/E were 12.14 and 12.21 respectively according to Yahoo Finance.
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Skechers’ Q1 2025 results underscore significant cracks in the company’s business model, validating the bearish thesis centered on tariff vulnerability and margin compression. Despite a strong topline growth of 7.1%, the company’s operating income fell by 11.3%, signaling the challenges it faces in maintaining profitability amid rising costs. This divergence between revenue growth and profit decline points to a deeper issue: Skechers is struggling to maintain its margins, a key factor in the bearish outlook for the company.
The most notable confirmation of the bearish thesis comes from Skechers’ decision to withdraw its full-year guidance, citing “macroeconomic uncertainty stemming from global trade policies.” This move directly supports the earlier prediction that Skechers’ reliance on Asian manufacturing makes the company highly vulnerable to tariff impacts, particularly the 125% tariffs that are set to escalate in the coming quarters. This tariff risk looms large, as Skechers lacks the pricing power to absorb these costs without eroding demand or margins.
Skechers’ significant exposure to the Chinese market exacerbates its challenges. Sales in China dropped by 15.9% year-over-year, representing the company’s worst-performing region. This sharp decline further supports the bearish thesis, highlighting the intensifying competition within China and the company’s waning market share. The fact that management attempted to reframe the performance by excluding China from its regional results only underscores how critical this market has become for the company’s global strategy. China, once accounting for 14.2% of total sales in Q1 2024, now represents just 11.1%, confirming that the company is losing ground in one of its most important markets. The combination of lower demand and rising tariffs creates a precarious situation for Skechers, where both its sales and profit growth are under significant pressure.
The margin story is particularly concerning. Operating margins fell by 230 basis points to 11.0%, and gross margins dropped by 50 basis points to 52.0%. Operating expenses increased by 12.1%, far outpacing the 7.1% revenue growth. This compression in margins occurred before the full impact of the increased tariffs hits in Q2 and beyond, further emphasizing Skechers’ inability to offset rising costs through price hikes. The company’s pricing power is clearly lacking, and its inability to protect its margins from cost pressures reveals a fundamental weakness in its business model.
