If you remember my post from 5 months ago (and if you don’t, shame on you), I warned that Skechers was one Trump election away from a full-blown earnings aneurysm. They import 85% of their shoes from Asia. So naturally, a little thing called “tariffs” comes back on the menu, and boom, Skechers pulled full-year 2025 guidance citing “uncertainty" despite record Q1 revenues! They didn't even revise their guidance, they straight up refused to provide one! why? well i believe that if they did provide the real guidance, long-term bullish investors would scream like a little girl who just found out her iPad battery is at 2% and she’s on a 15-hour flight with no charger and no Wi-Fi.
# Q1 Earnings Confirm Tariff Vulnerability
# Executive Summary
Five months after my original bearish thesis on Skechers (NYSE:SKX) at $73, the company has reported Q1 2025 earnings that provide striking validation of my core predictions. Despite posting superficially strong revenue growth of 7.1%, Skechers has withdrawn full-year guidance citing "macroeconomic uncertainty stemming from global trade policies" – explicit confirmation of my tariff vulnerability thesis. With the stock now at $50 (a 32% decline since my initial coverage), the company's Q1 results reveal the fundamental weakness I outlined is materializing even faster than anticipated.
# Q1 2025 Results: The Cracks Are Showing
|Metric|Q1 2025 Result|YoY Change|Impact on Thesis|
|:-|:-|:-|:-|
|Revenue|$2.41 billion|\+7.1%|Strong topline masks underlying issues|
|Operating Margin|11.0%|\-230 bps|**Significant margin compression**|
|Operating Income|$265.1 million|\-11.3%|**Profitability deteriorating**|
|EPS|$1.34|\+0.8%|Minimal growth despite revenue increase|
|China Sales|$268.7 million|\-15.9%|**Major weakness in key market**|
|Guidance|Withdrawn|N/A|**Direct confirmation of tariff thesis**|
What stands out most is the stark disconnect between revenue growth (+7.1%) and operating income decline (-11.3%), revealing the margin compression that forms the cornerstone of my bear thesis. This divergence confirms that Skechers can't maintain profitability in the face of rising costs – precisely the vulnerability that makes them uniquely exposed to tariff impacts.
# Original Analysis: Bear/Base/Bull Case Revisited
Let's revisit the specific assumptions from my original analysis to understand why we're seeing these developments:
# Bear Case: $24.80
|Metric|Value|
|:-|:-|
|Target Price|$24.80|
|EV/EBITDA|4.8x LTM|
|P/E Ratio|7.13x LTM|
|Revenue Growth|Wholesale 4%, DTC 12% (normalized)|
|COGS|63.7% of sales after 2026|
|Tariff Impact|60% on Chinese imports (45% of production)|
|Other Tariffs|10% blanket on rest of supply|
|Probability|50/50 weighted assumption|
With tariffs now at 125% (vs. my modeled 60%), the margin compression will be even more severe than initially projected, suggesting the true bear case could drive the stock below my original $24.80 target.
# Base Case: $55.90
|Metric|Value|
|:-|:-|
|Target Price|$55.90|
|EV/EBITDA|9.7x LTM|
|P/E Ratio|16x LTM|
|COGS|55% in terminal year (3% higher than 4-year avg)|
|DIO|Decrease by 3 days from 3-year average|
|Capex|Halved as % of revenue|
Importantly, even my base case assumed some moderate cost pressure, with COGS rising to 55% (3% above the historical average), but didn't incorporate tariff impact. This explains why management could post record revenues in Q1 (reflecting the pre-tariff environment) while simultaneously withdrawing guidance (acknowledging the post-tariff reality).
# Bull Case: $103.40
|Metric|Value|
|:-|:-|
|Target Price|$103.40|
|EV/EBITDA|17.3x LTM|
|P/E Ratio|29.7x LTM|
|Revenue Growth|Wholesale 4% terminal, DTC 20% constant|
|COGS|Decrease to 2% of sales in terminal year|
|SG&A|Decrease \~1-2% of sales|
|DSO|Improves by 5 days|
|DIO|Improves by 5 days|
The bull case, which I assigned only a 5% probability, assumed operational improvements that now appear completely unrealistic in the current tariff environment.
# Thesis Validation Point-by-Point
# 1. Tariff Vulnerability Explicitly Confirmed
The single most important validation comes from management's own words. Their decision to withdraw full-year guidance specifically citing "macroeconomic uncertainty stemming from global trade policies" is direct confirmation of my thesis that tariffs represent an existential threat to their business model. The company is acknowledging what I predicted five months ago: their heavy reliance on Asian manufacturing creates an unsustainable vulnerability to the current trade environment.
# 2. China Dependency Exposed
Management's attempt to reframe APAC performance by highlighting "when excluding China, sales increased 12%" actually underscores their China problem. China sales plummeted 15.9% year-over-year to $268.7 million, making it their worst-performing region by far. This represents a significant deterioration in what has historically been one of their largest and most important markets.
The China narrative reveals an important context shift:
* Q1 2024: China represented \~14.2% of total sales ($319.5M)
* Q1 2025: China now represents \~11.1% of total sales ($268.7M)
This 3.1 percentage point decline in China's contribution to total sales confirms the market share erosion I predicted as local competition intensifies and Skechers loses its positioning in this critical market.
There’s even more downside risk here, given their exposure to **reciprocal tariffs from China**. Let’s be honest—no Chinese consumer, especially not a patriotic boomer, is going to shell out 100%+ in tariffs for a shoe that looks and feels like something they could buy off a folding table outside a metro station. And if that’s a tough sell in China, good luck convincing American shoppers to pay up either.
# 3. Margin Structure Deteriorating
The margin story is particularly concerning for Skechers shareholders:
* Operating margin declined 230 basis points to 11.0%
* Gross margin declined 50 basis points to 52.0%
* Operating expenses increased 12.1% (far outpacing revenue growth)
This margin compression is occurring even before the full impact of 125% tariffs flows through their income statement in Q2 and beyond. The company's inability to maintain margins even in a strong revenue quarter confirms my thesis that their business model lacks the pricing power to offset rising costs.
# 4. Inventory Situation
Inventory stood at $1.77 billion, down 7.6% from December 31, 2024. While this represents some improvement, the absolute level remains historically elevated. More concerning is the potential for future inventory build as tariff-impacted costs flow through their supply chain, potentially leading to margin-eroding markdowns or further inventory growth.
# Short Thesis vs. Q1 Results Comparison
|Metric|Original Thesis Prediction|Q1 2025 Reality|
|:-|:-|:-|
|Guidance|Predicted withdrawal due to tariff uncertainty|Withdrawn citing "global trade policies" uncertainty|
|China Performance|Predicted weakness and sales declines|Sales declined 15.9%, worst regional performer|
|Margins|Predicted compression|Operating margin -230bps, gross margin -50bps|
|Inventory|Predicted high DIO as risk|Down 7.6% QoQ but historically still elevated|
|Revenue|Not primary concern; focus on margins|Strong at +7.1% but operating income -11.3%|
|Tariff Impact|Central to bear thesis|Explicitly cited as reason for guidance withdrawal|
# Implications Going Forward
The Q1 earnings reinforce my conviction in the bear case. While revenue growth was strong, the rapid deterioration in margins and profitability suggests the company is already feeling the impact of higher costs, even before the full brunt of 125% tariffs hits in Q2 and beyond.
Management's decision to withdraw guidance indicates they see significant downside risk to their financial performance, likely due to their inability to pass through tariff-related costs without hurting demand. This confirms my original thesis that Skechers lacks the brand equity and pricing power needed to navigate this environment.
The China narrative is particularly telling. By attempting to reframe APAC performance to exclude China, management is tacitly acknowledging the significant challenges they face in what was previously one of their most important growth markets. This reinforces my view that their international expansion strategy faces structural headwinds.
# Conclusion and Price Target
At $50, Skechers has already declined 32% from the price 5 months ago of $73, but the Q1 results confirms significant additional downside remains. With margins compressing even before the full impact of tariffs, my original bear case target of $24.80 - $32 remains firmly in play.
The Q1 report provides compelling validation of my original thesis: Skechers faces fundamental challenges in its business model that make it uniquely vulnerable to the current tariff environment. The combination of China weakness, margin compression, and management's explicit acknowledgment of tariff risk through guidance withdrawal confirms the structural issues I identified are now materializing in their financial results.
**Position:** Puts (see below)
**Catalysts:** Tariff escalation + Q2 margin pressure + inventory overhang = realignment
**Outlook:** This isn’t panic selling—it’s slow-motion repricing. And management just gave us the signal.
*Disclaimer: This analysis is not financial advice. Investors should conduct their own due diligence before making investment decisions.*
**All positions recently opened (expecting them to be up tomorrow as stock is down \~7% pre-market)**
*(latest one opened right before earnings and planning on keeping until the next catalysts (I will close these immediately if trump makes a tariff deal with all countries, especially with China. otherwise, waiting for Q2 impact to observe mitigation plan execution and the cost of such mitigation plan.*
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