Second Quarter Earnings Preview: Skechers, Steven Madden, Deckers

Ten footwear firms will report their second quarter results this week, and analysts will look for commentary on how excess product liquidations and continued input cost increases will affect gross margins moving into the second half, as well as an update on companies with exposure to Europe.

Christopher Svezia, analyst at Susquehanna Financial, wrote in a research note, “We expect mainly in-line to modest beats for the group, with any upside flowed through to annual guidance. Most of our covered brands issued relatively moderate and back-half weighted fiscal 2012 guidance coming out of the first quarter and will now have to communicate that they can deliver on expectations.”

Here are more specific thoughts on Skechers USA Inc., Steven Madden Ltd. and Deckers Outdoor Corp.

Skechers USA Inc.
Analysts expect things to look up at the Manhattan Beach, Calif.-based firm.

Sam Poser, analyst at Sterne Agee, said he believes this second quarter is likely to be the last negative year-over-year comparison as clean inventory and reduced expenses should drive margins going forward.

“We are expecting sales to turn around and pick up momentum for back-to-school given the clean inventory levels and improved new product. Based on conversations with management, industry contacts and various wholesale accounts, we believe that many of the larger family footwear retailers and moderate department stores are planning the fall Skechers business up in the second half,” he said. “Investing in Skechers is not for the faint of heart, [but] we expect to see strong results for at least the next three quarters.”

Skechers reports its results after the market on Wednesday. Analysts are expecting a loss of 12 cents a share on revenue of $372.7 million, as polled by Yahoo Finance.

Steven Madden Ltd.
The Long Island City, N.Y.-based firm reports its second quarter results on Thursday morning.

While the firm has been a favorite with analysts in recent quarters, they are now cautious about the company’s sales.

“We [expect] sales and earnings downside as unseasonable weather patterns, combined with first quarter demand …, may have negatively impacted consumer spending during the quarter,” said Steve Marotta, analyst at CL King in a research note. “While our channel checks reveal that fashion footwear sales continue to perform well, category-wide sales velocity was more tepid in the second quarter compared to the first.”

Camilo Lyon, analyst at Canaccord Genuity, said Madden’s results will be impacted by softness in the sandals and wedge category, due to a trend in closed-toe flats and sneakers, as well as an increase in demand in the first quarter.

“Looking to the second half, the firm should benefit from having already transitioned to booties from boots while also getting the average selling price lift from more embellishments on those booties,” Lyon added.

The Street is looking for Madden’s EPS to come in at 63 cents on revenue of $281.7 million.

Deckers Outdoor Corp.
Analysts are still on the fence about this company and expect to see losses.

“We see no material risk to U.S. orders as a higher quantity is locked in earlier in the season [than] international,” said Svezia, adding, “We believe there is a 50/50 chance [that] management moderately reduces its revenue forecast when the company reports earnings given the macro backdrop in the U.K., its largest international market.”

Lyon agreed. “The international segment continues to face its share of challenges as the company attempts to grow the Ugg brand in difficult and slowing macro environments such as the U.K. and China,” he wrote in a research note.

According to Yahoo Finance, 16 analysts are expecting a second quarter loss of 60 cents on revenue of $166.7 million.

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