Skechers Posts Loss, Faces Challenges

LOS ANGELES — In the wake of Skechers’ news that it had swung to a loss during its fourth quarter, analysts last week said the brand could face some challenges, despite cost-cutting measures.

“I don’t think there’s anything wrong with the brand, but they’re going to have a tough time in this environment,” said Jeff Mintz, an analyst with Wedbush Morgan Securities. “They recognized they had to make some cuts. [But] I’m not sure they’re making enough cuts to recover from an earnings standpoint if things continue to be bad.”

In a research note, Susquehanna Financial Group analyst Christopher Svezia wrote that he was cautious, but hopeful that the company would rebound in the near term. “While we believe the company’s steps to curb expenses should have taken place much earlier, it is encouraging to hear this continues to be a focus moving forward,” he wrote. “We will take a wait-and-see attitude on these initiatives, but believe continued brand relevance combined with prudent expense management could help position the company for [2010].”

Skechers said that for the quarter ended Dec. 31, 2008, it racked up a net loss of $20.4 million or 44 cents per diluted share, versus earnings of $12.1 million, or 26 cents, for the same year-ago quarter. Sales during the period were $298.1 million, compared with $302 million in the fourth quarter of 2007.

Skechers COO David Weinberg said during a conference call that the tough retail environment would continue to affect the company’s sales and profitability throughout the first half of 2009. However, he said the second half of the year showed more promise. “We do believe we will return to profitability in the second half of the year,” Weinberg said. “We also believe we will emerge as an even stronger company due to our well-known and trusted brand, wide range of products at reasonable prices and our ability to fill sizes and at-once needs.”

One potential growth area could be the company’s move into the wellness category with the launch of Shape-ups, a fitness walking shoe similar to the style introduced by MBT. The footwear, which debuted at WSA, will retail for around $100 and is targeted to accounts such as Famous Footwear and JCPenney.

Mintz said that while the line will likely be a relatively small portion of Skechers’ business, it’s a positive move. “It will drive traffic because it’s something different,” he said. “And it’s an accessible price point.”

During the fourth quarter, the company opened seven retail stores, including flagship stores at New York’s Union Square and San Francisco’s Powell Street. In all, the company opened 32 stores in 2008 and closed two, bringing its total to 219 locations.

Weinberg said Skechers plans to bow 18 this year. “We continue to believe these stores serve as important brand builders, as well as profit contributors to our overall business,” he said.

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