Shares of footwear maker Skechers USA Inc. (SKX) bounced higher the day following its fourth-quarter earnings release, but alas the rally was short-lived as the shares gave back most of the gains in Friday trading.
For the quarter, Skechers said it lost $20.4 million, or 44 cents per share compared to net income of $12.1 million, or 26 cents per share a year ago. Sales fell slightly to $298.1 million from $302.0 million last year.
Nevertheless, the results beat the expectations of analysts polled by Thomson Reuters who were expecting the company to post a 47 cent per share loss on revenue of $292.6 million.
Skechers is a global leader in the lifestyle footwear industry and markets its products to trend-savvy men, women and children. Casuals, boots, sandals, athletic, work, fashion or urban — with over 2,500 styles Skechers meets the needs of male and female consumers across every age and demographic.
Therein lays its biggest problem during the recently completed quarter — excess inventory. The company said inventory-related costs ate into its margins during the quarter.
CFO Fred Schneider said that despite record yearly sales (of $1.44 billion), Skechers saw a shortfall in earnings in the fourth quarter due primarily to a decrease in gross margin of approximately 1,000 basis points from the year ago period.
He said the decrease in gross margin was a direct result of the extremely weak retail climate which caused a significant decline in U.S. retailers’ comps as well as a number of retail bankruptcies and going out of business sales.
The declining economic conditions led Skechers to manage its inventory levels down at reduced prices as well as an increase in its reserves by over $15 million. Mr. Schneider says that as the process is completed the company expects to see a return to its historic gross margin percentage levels of over 40 percent later in 2009.
Skechers’ CEO Robert Greenberg said 2008 was a year of achievements and pointed to the record sales, the addition of several new brands such as Bebe Sport, Punkrose and TapouT footwear to the company’s portfolio. He sees the international arena as an opportunity to further grow the business, and said he’s pleased with the performance of many of the its SKECHERS and fashion brands both domestically and internationally.
Skechers isn’t the only footwear retailer, or consumer products company for that matter, that is struggling. Rivals such as Deckers Outdoor and Timberland have also been hurt by declines in same-store sales and higher inventory levels as their customers reign in spending in the wake of the ongoing economic downturn.
While Skechers believes the weak economy will have a negative impact on the retail industry for the foreseeable future, management says with its strong balance sheet and portfolio of brands it remains confident the company is well-positioned for sustainable long-term profitability.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
