Athletic and consumer footwear maker Skechers USA (NYSE: SKX)
shares have sunk below its pre-COVID levels underperforming the benchmark S&P 500 index (NYSEARCA: SPY)
for the year. Shares gapped up to $34.01 in reaction to Q2 2020 earnings release before melting back down to current levels in the $28s. However, price action could be forming a rare bullish pattern called a seed wave due to the sequential higher lows. The athleisure segment has been benefiting from the stay-at-home lifestyle fostered by the pandemic isolation mandates. As restrictions get lifted and mall traffic returns, distribution channels re-open enabling footwear demand to accelerate. Prudent risk-tolerant investors may consider opportunistic pullback entries before upside momentum resumes.
Q2 FY 2020 Earnings Release
On July 23, 2020, Skechers released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported a loss of (-$0.44) per share versus consensus analyst estimates for a loss of (-$0.64) per share, a $0.20 per share beat. Revenues fell (-42%) year-over-year (YoY) to $729.47 million but beat consensus estimates of $655.30 million. Domestic wholesale revenues fell (-57.2%) YoY while international wholesale revenues declined (-29.9%) partially offset by China sales increasing 11.5% YoY. Gross margins improved by 210 basis points due to strong online sales. With most of the Company stores closed throughout the second quarter, the sales slumps were no surprise. Total inventories rose to $1.03 billion and increase of 20.1% YoY due to lower wholesale shipping and retail activity freeze resulting from the pandemic. Company-owned e-commerce sales grew 400% YoY primarily in Europe, North America and South America. The Company opened 102 new third-party Skechers stores in 28 countries to bring total store count to 3,615 worldwide.
The bright spot for Q2 2020 was the 11.5% YoY sales growth in China with e-commerce growth of 43%, which serves as a template for stores in other geographies restarting their economies. Nearly all stores had reopened in China during Q2 2020 providing “insights into safely and efficiently” reopening during a pandemic. This phenomenon in China was also experienced by competitor Nike (NYSE: NKE) , which also reported sequential top-line improvement in its China business as it became a model recovery template. Management also noted Germany is following in the footsteps of China and has gone positive in the quarter.
Mall Traffic Returns
Outside of hotspots, shopping and strip mall traffic has steadily been increasing on a weekly basis. This is a key sales channel for Skechers through their direct stores and wholesale distribution. Mall-based sports retailer Foot Locker (NYSE: FL) saw its business rebound enough to compel management into reinstating the dividend. Skechers should be experiencing the same headwinds since its previous earnings release and noted the “pent up demand” coming in at the end of the quarter resonate with a wider and younger audience. With the majority of stores open and fully operational, the Company also relaunched its website and new mobile app and loyalty programs are expected in the coming quarters.
SKX Opportunistic Pullback Price Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for SKX stock. The monthly rifle chart is in a make or break formation as the dormant downtrend commences a channel tightening above the 5-period moving average (MA) above $29.81. The monthly stochastic appears to be trying to cross back up which sets up a tightening back to the monthly 15-period MA at $33.51. The weekly rifle chart triggered a market structure low (MSL) buy above $26.77 Fibonacci (fib) level. An even tighter make or break is forming on the weekly rifle chart as the stochastic will resolve itself in a cross up or slip back down. The weekly Bollinger Bands (BBs) are compressing as the overall trading range gets tighter. During this choppy period, opportunistic pullback price levels are at $27.80 fib, $26.77 weekly MSL trigger/fib, $25.27 fib and 22.95 weekly lower BBs. Upside trajectories point to the $30.33 fib, $32.50 sticky 2.50s price zone, $33.94 fib triple top resistance and $36.09 weekly upper BBs/fib. The weekly BBs expansion requires the weekly stochastic to cross back up. The monthly stochastic cross up is only possible with a monthly candle close above the monthly 5-period MA. Both weekly and monthly stochastics crossing up may be required to finally break the triple top through $33.93 fib.
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