A weak update on China sank the stock.
While the broad stock market was soaring on interest rate cuts today, Skechers (SKX -9.62%), the casual footwear specialist, was moving in the opposite direction, tumbling after it told investors that China sales were weaker than expected at an industry conference.
As a result, the stock finished down 9.6% on the news.
Image source: Getty Images.
China struggles continue
Skechers is far from the only U.S. consumer-discretionary company that’s struggling in China as Nike, Apple, and Starbucks have all reported weak results in the world’s No. 2 economy, but investors were disappointed by the latest update.
At the Wells Fargo Consumer Conference, Skechers management said it’s facing some challenges in some Asian markets, and “China is having some pretty severe consumer discretionary pressures.” It also called them a “bit worse than anticipated” and said it was focused on resetting its strategy.
Skechers didn’t give specific guidance around the weaker conditions, but investors interpreted the news poorly, believing it meant that second-half results would be worse than expected.
China makes up roughly 15% of its sales, and management alluded to challenges in China in its second-quarter earnings report, saying that results from the June 18 shopping holiday were weaker than expected.
What’s next for Skechers
Considering that China makes up just 15% of the company’s revenue, investors may be overreacting to the news, though the company’s decision to not update guidance could lead investors to believe that the impact will be especially negative.
Skechers has fared reasonably well in a challenging environment in the footwear industry with revenue up 7% in Q2, which should give investors confidence.
Given that the challenges in China aren’t specific to Skechers, this doesn’t look like a reason to sell the stock. Skechers should be fine over the long run.
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 has a disclosure policy.
