“We find [conditions] very challenging in the U.S. heading into [fiscal 2012] as we believe the core business continues to be under even more pressure than we initially thought,” Susquehanna Financial analyst Christopher Svezia wrote in an earnings note. “Furthermore, management commented last quarter that early reads from new product were good, only for sales to miss significantly.”
The Manhattan Beach, Calif.-based firm’s bright spots came by way of its overseas operations. Highlights include double-digit sales growth in its international distributor business, double-digit gains in the company’s international retail division and a single-digit increase in its subsidiary and joint-venture business. The firm also announced it launched a subsidiary in Japan called Skechers Japan G.K., with the goal of doubling sales in that country over the next three to five years.
During a conference call with investors and analysts, COO and CFO David Weinberg said the company was up against tough year-over-year comparisons, though he acknowledged that a softening of the toning market did significantly impact the firm.
“We are learning from both last year’s successes and this year’s challenges, and are applying this knowledge to [improve] development and distribution,” Weinberg reassured investors. “We delivered some strong new fitness shoes in the second and third quarters of this year, as well as a great fall and winter package, resulting in improved sales for those lines.”
Weinberg added that the company will launch its first true performance line of footwear in the fourth quarter, highlighted by Olympic medalist Meb Keflezighi, who will run in the shoes during this weekend’s New York City Marathon.
However, that focus on fitness is causing anxiety for some.
“Skechers is entering into wholesale accounts that already do business with established athletic brands with which Skechers can’t compete on an authenticity and technical level,” noted Sterne Agee analyst Sam Poser.
Skechers has cut its inventory by more than $160 million since the beginning of the year, and now has $248 million in cash and $79 million in long-term debt. Third-quarter revenues fell 26 percent to $412.2 million. Net earnings were $8.3 million, or 17 cents a share, less than a quarter of what it was last year, bringing the company’s year-to-date loss to $9.8 million. Gross margin fell 310 basis points to 42.5 percent.