Skechers USA, Inc. reported that net sales for the third quarter rose 21.4% to $331.1 million compared to $272.8 million for the same period in 2005. Third quarter 2006 net earnings were $22.2 million, or 49 cents per diluted share, versus net earnings of $12.6 million, or 30 cents per diluted share, in the third quarter of the prior year, an increase of 75.7%. SKX had forecast Q3 diluted EPS in the 37 cents to 42 cents range on sales between $310 million and $320 million for the period
“We are extremely pleased with our quarterly results as the broad-based strength of our product continues, which led us to a new sales record for the quarter. Our third quarter 2006 sales represent the highest in the companys 14 year history, and led to two new firsts, surpassing $300.0 million in net sales for a single quarter and $900.0 million for the first nine months. In addition, we achieved record net earnings and EPS for the third quarter, evidencing the positive operating leverage we are generating in the business from our scaleable infrastructure and strategically targeted marketing spend,” began David Weinberg, chief operating officer of Skechers. “Our improved sales and profitability were the result of growth across all channels of distribution domestic and international wholesale and retail, and our e-commerce business as well as growth within our Skechers lines and key fashion lines. We also believe our third quarter sales were positively impacted by increased advertising efforts in both the second and third quarters.”
Mr. Weinberg continued: “As I mentioned on the second quarter conference call, the second and third quarters should be viewed together due to the potential for shipments to shift between June and July. Looking at the combined sales from the two quarters, we had a 16.1% increase in net sales over the same period last year.”
For the nine-month period ended September 30, 2006, net sales rose 15.1% to $900.9 million compared to net sales of $783.0 million in the first nine months of 2005. Net earnings for the first nine months of 2006 were $56.4 million versus $38.8 million in the first nine months of 2005, an increase of 45.3%. Diluted earnings per share for the first nine months of 2006 were $1.27 per share on 45,936,000 diluted shares outstanding versus $0.92 per share on 44,459,000 diluted shares outstanding.
Net earnings were also positively impacted by the non-recurring reversal of a reserve for a discrete income tax exposure item for which the statute of limitations expired during the quarter. This reversal increased net earnings by approximately $1.3 million, or approximately $0.03 per diluted earnings per share for the quarter and nine-month periods.
Gross profit for the third quarter of 2006 was $146.3 million or 44.2% of net sales compared to $115.5 million or 42.3% of net sales in the third quarter of last year. Gross profit for the first nine months of 2006 was $395.4 million or 43.9% of sales versus $327.4 million or 41.8% of sales in the first nine months of the prior year.
Robert Greenberg, Skechers chief executive officer, said: “Back to School 2006 has been incredible for us from a product, sales, marketing and financial perspective. Our product and position in the marketplace has never been stronger. We have hit new strides with our existing lines and broken new ground with our recently added lines including SoHo Lab Fashion, Kitson, and the just launched Zoo York footwear. From a marketing perspective, we have connected to our diverse consumer base through multiple mediums and with a growing roster of top-notch talent: actor Terrence Howard and hip-hop superstar The Game for 310, Evangeline Lilly of the hit series 'Lost' for Michelle K, and platinum-selling singers Carrie Underwood and Ashlee Simpson our most recent addition for Skechers. The combination of these efforts, including the benefit of our advertising efforts, has resulted in more pairs sold with both higher prices and margins than last year. This has been a year of records with our first three quarters of 2006 being record quarters and I believe we will finish the year with a new record fourth quarter.”
“We believe the positive sales and margin trends will continue for the remainder of 2006 and into 2007,” stated Fred Schneider, Skechers chief financial officer. “We are well positioned from an inventory standpoint and believe that our improved margins, strong domestic and international backlog, continued double-digit comp store sales, a growing retail base, and strong sell-throughs across our mens, womens and kids lines will provide us with the opportunity to achieve record revenues and profits for 2006, and will help us enter 2007 with the same strong momentum.”
SKX now expects fourth quarter sales to be in the range of $255.0 million to $265.0 million and diluted EPS of between 22 cents and 27 cents per sahre. For the full 2006 year, the company expects sales to be in the range of $1.16 billion and $1.17 billion and earnings per share between $1.49 and $1.54.
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
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Net sales $331,126 $272,836 $900,874 $782,983
Cost of sales 184,823 157,363 505,461 455,538
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Gross profit 146,303 115,473 395,413 327,445
Royalty income, net 1,359 1,998 2,912 5,072
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147,662 117,471 398,325 332,517
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Operating expenses:
Selling 35,703 27,190 86,951 66,336
General and administrative 77,476 68,840 222,212 200,452
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113,179 96,030 309,163 266,788
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Earnings from operations 34,483 21,441 89,162 65,729
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Other income (expense):
Interest, net (252) (912) (796) (4,109)
Other, net 69 251 328 1,598
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(183) (661) (468) (2,511)
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Earnings before income taxes 34,300 20,780 88,694 63,218
Income tax expense 12,101 8,148 32,281 24,402
--------- --------- --------- ---------
Net earnings $22,199 $12,632 $56,413 $38,816
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Net earnings per share:
Basic $0.54 $0.32 $1.38 $0.98
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Diluted $0.49 $0.30 $1.27 $0.92
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