Skechers Stock Sinks on Dismal Guidance, Downgrade

SKX is continuing its recent history of volatile post-earnings trading

Apr 20, 2018 at 9:55 AM
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Skechers USA Inc (NYSE:SKX) reported better-than-expected first-quarter profit of 75 cents per share on in-line revenue of $1.25 billion. However, the shoemaker gave a weak forecast for the current quarter, sending SKX stock down 26.1% to trade at $31.09 -- its lowest point since November.

A round of bearish brokerage notes is only adding to the pressure. Included in the bunch was a downgrade to "neutral" from "outperform" at Wedbush, with the brokerage firm also slashing its price target by $12 to $34. Cowen, meanwhile, cut its price target to $41 from $46, but said weather and distributor weakness were to blame for the soft outlook, versus the actual product.

Today's swing is nothing new for SKX stock, which has a history of making big post-earnings moves. And a number of options traders in recent weeks had been bracing for a negative earnings reaction. In addition to accelerated put buying at the major options exchanges, the stock's April 47.50 call saw the biggest increase in open interest over the last 10 days -- most of which was sold to open last Friday, according to Trade-Alert.

While this would suggest that those writing the calls expected SKX to stay below $47.50 through front-month expiration at tonight's close, another possible motive may have been to profit off a post-earnings volatility crush. At last Friday's close, implied volatility at this strike closed up 13.5 percentage points at 98.1%, with the calls trading at a volume-weighted average price (VWAP) of $0.50. Today, the ask price for the deep in-the-money calls was $0.05, though the traders will likely just let the options expire worthless at the end of the day.

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