“The main issue continues to be the pace at which they can work down inventory,” said Camilo Lyon, an analyst at Wedbush Securities. “It will take them through year’s end to get through that inventory. I will feel better about the company once they get past the half-way mark [in terms of reducing inventory], but I don’t think that will happen [for at least] five months.”
Susquehanna Financial analyst Christopher Svezia, too, said the excess toning inventory would hang over Skechers, which might need to employ steep markdowns and alternative discount channels to purge the surplus shoes. “At some point, they are going to have to make some decisions about what to do, and that will probably happen late in the second or third quarter,” he said.
The Manhattan Beach, Calif.-based company reported that total inventory as of March 31 was $376.2 million, an increase of $187 million from the first quarter of last year. However, that figure is down $22 million from the close of 2010.
For the first quarter, the firm reported a 79 percent decline in net earnings to $11.8 million, or 24 cents a diluted share, versus $56.3 million, or $1.15, in the year-ago period. Net sales declined to $476.2 million, from $492.8 million in the first quarter of last year.
Skechers COO and CFO David Weinberg said during a conference call with analysts that the company faced tough financial comparisons going up against record earnings last year. However, he affirmed, the core business remains strong. “Our focus this quarter was on reducing our inventory level and future commitments while also delivering exciting new styles and growing our international business,” he said. “We expect the tough comparisons to continue in the second quarter, given a record quarterly revenue — up $500 million last year — and the historically slower second quarter for international, as well as the need to continue to move older inventory.”
Weinberg forecast better times during the back half of the year.
“We believe both our sales and margins will improve in the second half of the year as we deliver more fresh product,” he said. “We also are carefully reviewing our expenses, which increased in part due to significant growth last year. We are looking to trim costs in all areas of our business to position ourselves to profitably grow in the future.”