Skechers Looks Ahead After Tough Q3

NEW YORK — Skechers USA Inc. is ready to shape up its inventory.

A product buildup from poor summer sales of toning styles suggests that demand for original rocker-bottom styles has softened, said analysts.

While the Manhattan Beach, Calif.-based firm’s market share in the toning space has dropped from about 80 percent at the top of the year to 55 percent now, according to data from SportsOneSource, the category is evolving and expanding.

“You have new brands entering the marketplace, with different spins on the idea of toning and shaping,” said Christopher Svezia, analyst with Susquehanna Financial Group, adding that the category’s year-over-year sales are still growing.

Skechers missed both sales and earnings expectations by a wide margin last week, sending its stock price down 18 percent to $19.33 last Thursday.

According to analysts, Skechers should have expected the slowdown in toning sell-throughs during the back-to-school season.

The firm ended the third quarter with 70 percent more inventory than it had at the same time last year. Retailers had aggressively bought new toning footwear styles, but when sales disappointed and inventories backed up, they responded by canceling or delaying orders for fall shipments.

“I’m hoping this is just a very large speed bump we’re trying to get over. As Skechers tries to rightsize its business, it will still be a meaningful player in this category,” said Svezia.

Skechers said it plans to work down the inventory gradually by diverting product either to international markets where demand for toning is still accelerating or to its own retail stores.

On the bright side, Skechers’ net revenue advanced 37 percent to $554.6 million, from $405.4 million.

Looking ahead, Skechers EVP, COO and CFO David Weinberg said retailers are now “so reactive that we hope they’ve rightsized the backlog so that there’s an uptick … for holiday and for spring.”

Analysts agreed that Skechers’ core business remains healthy, and the firm’s international momentum is still strong.

Sterne Agee analyst Sam Poser said Skechers has growth opportunities with its new styles, such as the Resistance Trainer.

For the third quarter, Skechers earned a net income of $36.4 million, or 74 cents a share, compared with $24.5 million, or 52 cents, in the same period a year ago.

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