Skechers Navigates Tariff Turbulence: Margin Risks and Strategic Resilience
38min read UBS’s recent analysis of Skechers USA (SKX) paints a challenging but nuanced picture for the footwear giant. While tariffs threaten to inflate costs by 24% in the near term, the firm’s geographic diversification, operational agility, and brand strength position it to weather the storm—and even seize opportunities in a competitive landscape.
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The Tariff Tsunami
UBS estimates that tariffs could increase Skechers’ cost of goods sold (COGS) by 24% if left unaddressed, driven by a reliance on manufacturing hubs like China and Vietnam. These countries account for over 80% of Skechers’ footwear production, with nearly half of U.S. imports sourced from each nation. The problem is compounded by a steep 145% tariff on Chinese goods, a legacy of ongoing trade tensions.
Ask Aime: "Will tariffs affect Skechers' profits and stock price?"
The stakes are high: Skechers derives 66% of its revenue outside the U.S., meaning its margin health hinges on global execution. ubs warns that the company must balance rising costs against price-sensitive consumers, particularly in the U.S., where 40% of sales are tied to domestic demand.
Mitigation Strategies in Motion
To counter these pressures, Skechers is deploying a multi-pronged strategy. First, it’s diversifying production, reducing reliance on China for certain product lines (e.g., children’s footwear) while maintaining compliance with U.S. safety standards. Second, the firm is renegotiating vendor contracts and optimizing sourcing to offset tariff impacts.
Crucially, Skechers’ global footprint allows it to spread price increases across markets less affected by tariffs. UBS notes that 66% of sales outside the U.S. provide a buffer, as international consumers may absorb cost hikes more easily. The firm also emphasizes Skechers’ value-driven product focus—slip-ons and comfort-focused footwear—which historically outperform during economic downturns.
Financial Outlook: Near-Term Pain, Long-Term Potential
UBS lowered its earnings estimates for 2025 and 2026, citing tariffs and macroeconomic headwinds. However, the firm maintained a Buy rating, arguing that Skechers’ agility could turn the tide. A key parallel is the company’s performance during the pandemic, when it gained market share by pivoting to in-demand comfort styles.
UBS also highlights Skechers’ inventory management as a competitive edge. Unlike peers that struggled with excess stock, Skechers has maintained discipline, particularly in China, where sales fell 16% in Q1 2025 due to weakening demand.
Risks and Roadmap to Resilience
The path forward is not without hurdles. Escalating trade policies or a prolonged slowdown in key markets—like China, which now accounts for only 16% of Skechers’ sales but remains volatile—could test the company’s flexibility.
Yet UBS remains bullish, citing Skechers’ “scale and diverse business mix” as a moat against rivals. The firm’s ability to shift production, leverage global demand, and capitalize on value-driven trends gives it a fighting chance to stabilize margins.
Conclusion: A Buy for the Long Game
UBS’s analysis underscores a critical truth: tariffs are a near-term challenge, but Skechers’ playbook offers reasons for optimism. With 24% cost inflation averted through strategic moves, 66% international sales spreading risk, and a proven ability to pivot during crises, the company is primed to outlast the storm.
While execution risks linger, the Buy rating reflects a bet on Skechers’ operational resilience and its position as a value-driven leader. Investors weighing the stock should monitor tariff developments and Skechers’ progress in shifting production, but the fundamentals suggest this is a story of adaptation—and potential reward—in a turbulent market.
