Cautious retailers continue to be a 'Grinch' for these clothing and shoe makers

By Bill Peters

Shares of Skechers USA and Columbia Sportswear Co. fell on Friday, following disappointing holiday-quarter results

The broader economy might be holding up. But if Thursday's results from Skechers USA and Columbia Sportswear Co. are any indication, the part of it that involves buying shoes and jackets might still be awaiting its soft landing.

Shares of both the comfort-shoe maker and the maker of ski jackets fell on Friday, following disappointing holiday-quarter results. While analysts hunted for positives afterward, executives at both companies pointed to continued reluctance from retail stores to stock up on their products.

Skechers (SKX) said on Thursday that "several retailers continued to conservatively manage their inventory levels." Columbia (COLM) also noted that retailers were "placing orders cautiously."

Taken together, the accounts underscore the shaky terrain being navigated by apparel makers, even if online sales and sales through their own in-house stores prove to be occasional bright spots.

Skechers' stock was down 9.6% on Friday. Columbia shares lost 1.7%.

The jump in food prices and other basics two years ago left shoppers with less to spend on discretionary goods, like clothing or furniture. As a result, retailers found themselves unable to sell those less-essential purchases without cutting prices, and have remained worried about getting caught again with too much product that nobody wants. While the U.S. economy continues to add jobs, prices for many basic necessities are still higher than they were four years ago, curtailing demand for things like shoes and clothes.

Wedbush analyst Tom Nikic, in a research note Thursday, said Skechers' wholesale business - the one that makes money when retail stores buy the company's shoes and then display them for shoppers - "was the Grinch that stole Christmas."

Sales at Skechers' wholesale segment fell 8% year over year during the fourth quarter, with a 10% drop in the U.S. Nikic said the decrease came as a surprise, following a slight gain in the prior quarter. But he noted the 20% sales jump in Skechers' direct-to-consumer business, or sales via e-commerce and the company's own retail locations. That segment accounted for a majority of Skechers' total sales for the first time, the company said on its earnings call Thursday.

During that call, executives at Skechers also said that "retail sell-throughs at our major accounts were actually up single digits." They also said shipment trends last month offered reasons to be encouraged.

"January has held up very well," Chief Operating Officer David Weinberg said on Skechers' earnings call on Thursday. "It was beyond our expectations around the world. So right now, we sit in a good position inventory-wise and with receipt of goods, and we'll see what happens as we go back through the year."

Other makers of clothing and sneakers, like Levi Strauss & Co. and Nike Inc., have focused more on selling items themselves over recent years, in an effort to gain more control over what gets sold and strengthen profit margins. Levi's (NKE), in its most recent quarter, reported an 11% jump in direct-to-consumer sales. Nike (NKE) in December reported a 6% gain on those sales, but noted that efforts to handle that business on its own had "added complexity and inefficiencies."

Levi's, when it reported results last month, said demand had improved somewhat at clothing stores. However, both companies are trying to cut staff, roll out cost-cutting plans for the years ahead and focus on newer offerings, be they higher-priced sneakers or lighter, more flexible denim.

Columbia Sportswear, meanwhile, reported lower direct-to-consumer sales in the fourth quarter. Sales fell overall.

"The Columbia brand generated healthy growth outside of the U.S., led by China and Europe-direct markets," Chief Executive Officer Tim Boyle said in Columbia's earnings release on Thursday. "In the U.S., we navigated a difficult U.S. marketplace and a warm winter, both of which impacted our fourth-quarter performance."

"Looking ahead, we expect 2024 to be a challenging year," he continued. "Retailers are placing orders cautiously, and economic and geopolitical uncertainty remains high."

UBS analysts, in a note on Friday, kept their "sell" rating on Columbia Sportswear's stock following the results.

"We remain cautious in underlying demand in the U.S. and thus anticipate DTC growth to be driven by [sales] from new store openings and temporary outlet locations," UBS analysts said.

-Bill Peters

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02-02-24 1605ET

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