A weaker-than-expected result from US footwear giant Skechers threatens to take the wind out of the sails of RCG Corp, which plans to more than double its Skechers store numbers in Australia.
RCG Corp is the largest footwear retailer in Australia and New Zealand, with brands including Skechers, The Athlete's Foot, Dr. Martens, and Merrell.
It is also a market darling, trading at 19 times 2017 earnings, and its shares soaring since early last year.
RCG's distribution agreement with Skechers expires at the end of 2026 and it plans to have between 120 and 140 Skechers stores by around 2020. As at June this year, it had 47. It plans to open 14 stores alone this financial year.
Skechers is the second-largest sportswear brand in the US and has 1710 retail stores worldwide.
RCG Corp co-CEO Hilton Brett has described Skechers as experiencing "phenomenal growth both globally and domestically. The strength of the brand lies in its universal appeal across all age, gender and socio-economic groups."
But short sellers have increasingly targeted RCG Corp in the wake of Skechers' disappointing third-quarter result on October 20, which revealed a 3.4 per cent drop in its domestic wholesale business.
Skechers told analysts the "retail environment in United States remains challenging, which has resulted in several retailers either closing doors or ceasing operations and widespread promotions on a normally full priced brand".
Joshua Ross, investment analyst at Watermark Funds Management, said the Skechers result, increasing competition in the Australian market from British sports fashion retailer JD Sports, and RCG's high PE (price to earnings ratio) was putting it under the spotlight.
"RCG has been a high flyer but I'd be surprised if the softening US trends don't eventually catch on in Australia," Mr Ross said.
"Local management has done an excellent job with execution to date. And in their favour, the Australian market is under-penetrated compared to the US market.
"They could still have years of of solid growth. But it's something to note that trends are deteriorating in North America."
RCG was contacted for comment.
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