Skechers Returns to Profitability in Q1

LOS ANGELES — Skechers USA Inc. last week posted a surprise first-quarter profit — and investors liked what they saw.

Cost-cutting measures, lower inventory levels and significant in-roads in international markets helped the Manhattan Beach, Calif.-based company get back in the black — and trounce analyst estimates — after posting a fourth-quarter loss.

Net earnings during the quarter declined 75 percent to $8.2 million or 18 cents a diluted share, compared with $32.8 million, or 70 cents, for the first quarter of 2008. Revenue during the quarter decreased 10.8 percent to $343.5 million versus $384.9 million for the year-ago quarter. Analysts polled by Thomson Reuters had expected a 9-cent loss per share on sales of $333 million.

On Thursday, the day after earnings were released, Skechers’ shares shot up almost 24 percent.

During a conference call with analysts and investors, EVP and COO David Weinberg said the company had employed strict cost controls, even as it expanded its retail store base and international presence.

“Our focus in the quarter was on managing our expenses and inventory,” he said. “We reduced our inventory by $88 million from year-end. In addition, we reduced our general and administrative expenses by $5.2 million, in spite of 29 more retail stores being operated in the first quarter of 2009 versus 2008 and additional expenses of $3.8 million related to China and Brazil as we gear up our operations in these regions.”

The company also announced it had launched a subsidiary in Chile and continued to open new points of sale in China and Hong Kong. Weinberg said the company has 14 stores and more than 90 points of sale in China, six stores and 11 points of sale in Hong Kong, and five stores in Malaysia and Thailand. “We believe these joint ventures will positively impact our international business within the next two years,” he said.

While applauding the company’s achievements during the quarter, analysts last week said they expect the second quarter to be more difficult.

“While we are impressed with management’s ability to right-size inventory, manage expenses and generate cash, we now expect a somewhat more challenging [second quarter],” Susquehanna Financial Group analyst Christopher Svezia wrote in an earnings note.

Sterne Agee & Leach analyst Sam Poser agreed that the outlook was a bit tougher for the second quarter. “Given that the retail calendar for June ends on Saturday, July 4, many orders historically move from [the second quarter] to [the third quarter] and retailers are cautious and buying closer to need, we see little opportunity for an upside surprise again in [the second quarter],” Poser said.

However, Weinberg told Footwear News he was more focused on sell-throughs, not necessarily timing, as he prepares for back-to-school.

“From a business perspective, it doesn’t matter if [sales] go in June or July,” he said. “That’s more of a Wall Street phenomenon. We’d certainly like to get [product] out to market as soon as we can because you can get an extra turn, but it only means so much. So long as they sell through real well, that’s fine with us.”

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