Skechers USA, Inc. reported its first revenue gain since the third quarter of 2008, driven by high-single digit growth internationally, double-digit improvements in its retail channel, and smaller declines in its domestic wholesale business. Backlogs are up double digits both domestically and internationally.


Net income declined 13.5% to $24.5 million, or 52 cents per share, in the third quarter, from $28.3 million, or 60 cents, in the year-ago period, but were well ahead of Wall Street's consensus estimate of 35 cents a share. Sales rose slightly, up 0.5% to $405.4 million.


Domestic wholesale sales were down 10% in the quarter and 16% in the nine months due to the weak retail environment, the closing of several fashion brands and the decrease of availability of off-price merchandise. But COO David Weinberg said on a conference call with analysts that the reaction by consumers and accounts to Skechers' fall product “has been extremely positive.”


He added, “While our third quarter sales are not as high as last year, we had more in-line full price product and increases in average price per pair from the third quarter 2008, and less closeouts which resulted in much improved profitability and positively impacted margins.”

Weinberg indicated that although the response to Shape-Ups has been  strong, it didn't have “that big an impact” given that domestic sales were down in the quarter and the line was launched in the U.S. Although he noted that Shape Ups along with a lack of close-out merchandise drove ASPs up on the domestic wholesale side in the quarter, several of Skechers models are checking out well. Overall, Weinberg said, “[Shape Ups] had a good beginning, but it's just the beginning and no one knows what it'll bring. But we have other products in our kids', men's, women's that are doing very, very well that are a bigger piece of the backlog and continue to improve over last year.”
Skechers’ international wholesale business improved by 7% for the third quarter from the prior year, and was down 3% for the first nine months.

 

The improvement in the quarter marked sharp improvement versus the first and second quarters, which were flat and down 20% respectively.
Skechers combined domestic and international retail sales were up 20% in Q3 with a positive retail comp of 7%. At the quarter's end, Skechers had 244 company-owned Skechers retail stores after opening five stores during the period.


Skechers also launched in Harrods for the first time, signed international distribution agreements for India and Mexico; and added an additional five Skechers retail stores in the U.S. and Canada, and another 14 distributor and joint venture stores around the world.


Another six stores will open in the remainder of the year, including locations in London's Covent Garden and Santiago, Chile. Plans call for 20 to 25 retail stores in 2010.


Gross margin improved 280 basis points due to fewer closeouts and more in line in demand inventory. SG&A expenses increased $4.3 million partly due to 29 more retail stores year-over-year and significant expenses related to its new operations in Chile, as well as its growing business's in Brazil, China and Hong Kong.


Robert Greenberg, Skechers’ CEO, said its improved liquidity – including cash and short-term investments of $276 million – and clean inventories will help Skechers capitalize on strengthening demand for its product.