Facing Tough Comparisons, Skechers Swings into Q4 Loss

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Skechers created "a media frenzy with our new Skechers GOrun Super Bowl commercial, starring the spunky French bulldog Mr. Quiggly and Dallas Mavericks owner Mark Cuban."

Manhattan Beach, CA—Facing tough comparisons after its toning footwear sales declined, Skechers USA Inc. reported Wednesday that it swung into a fourth quarter loss as sales declined 38%.

For the quarter ended Dec. 31, the footwear company reported a net loss of $57.7 million, or $1.18 a share, compared with a profit of $3.2 million, or 7 cents a share, a year ago.

Net sales dove 38% to $283.2 million from $454.6 million a year ago. Its U.S. wholesale business tumbled 57.5%, reflecting a difficult comparison to strong sales over the last few years. Declines were reported across categories including fitness, lifestyle and kids.

International wholesale business also declined 28% as sales overseas slowed in its toning footwear where prices were lowered.

On a combined basis, retail business sales declined 6%. Domestic retail sales decreased approximately 7%, but comparable store sales fell 15.5%. International retail sales remained flat, whereas comparable-store sales dropped 10.8%

“Our international business was also impacted by the slowing of toning sales as well as economic difficulties in many markets,” said David Weinberg, chief operating officer. “Our retail business held up the best in part due to the increased number of stores as well as our ability to quickly turn product.”

‘Encouraged’ by International Growth

As average unit retails declined, the company’s gross margin contracted 70 basis points to 39.8%.

The results were worse than analysts’ average estimate, expecting a loss of 25 cents a share, on revenue of $324.3 million, sending the company’s shares down in early trading today.

Looking ahead, Robert Greenberg, Skechers’ ceo, said new product introductions would help 2012 sales, particularly internationally.

“We are continuing to expand in key international markets, including the recent transition of our business in Japan from a third-party distributor to a wholly-owned subsidiary,” Greenberg said. “We are also encouraged by our company-owned concept stores, which had positive comp sales in January 2012. We believe that many of the challenges that we faced in the back half of 2011 are behind us, and we are eager to move ahead with our fresh product, effective marketing, and targeted distribution…We will be working toward reducing our operating expenses relative to top line revenues in the back half of the year, and believe the only planned spending increases this year will be for the opening of 18 to 20 company-owned stores and the launch of our subsidiary in Japan as we look to build this market to be our largest subsidiary.”

Analysts pointed out that Skechers licensing division could see more revenue, too. The company generated $3 million in revenue during the quarter from its licenses in categories such as eyewear, kids apparel, backpacks, watches, luggage, and socks.

Management hinted that Li & Fung, the sourcing giant, will launch fitness apparel for both men and women under the Skechers’ brand in 2012.


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