Based on comments by management at Skechers USA, the company is at the beginning at what could either be a false start or a very positive start to 2004 based on recent trends. Wall Street, like management, appears to want o believe the latter as SKX shares gained 6.2% for the week to close at $12.09 on Friday.

The comments come on the heels of yet another disappointing quarter and full year 2003 that ended with reduced margins, lower sales and a deep loss, compared to a significant profit in the 2002.

While the bleeding hasn’t stopped, management feels they have at least slowed it a bit as net sales dipped 3.0% to $175.3 million, compared to $180.8 million in the fourth quarter of 2002 which was down 15.5% from the prior year. The net loss for the quarter widened by 43.0% to $12.3 million, or 33 cents per diluted share, versus a net loss of $8.6 million, or 23 cents per diluted share, in the year-ago period. Margins were again lower in Q4, down 480 basis points to 33.7% versus 38.5% in Q4 2002.

The fourth quarter and full year also include approximately $620,000 of non-cash impairment charges relating to the write down of store assets at three company-owned retail stores.

Looking ahead, the company appears to be on two tracks that could bear fruit. One, they continue to license the Skechers name for children’s non-footwear product categories and look to owned-retail and international business to sustain Skechers brand sales. Secondly, they are now the footwear license for a number of apparel brands and appear to be looking for these brands for continued growth in the adult end of the business. The license agreement with Ecko Unlimited to serve as the licensee for Mark Ecko/Rhino Red Footwear will start delivery in Q2 2004 and is seen as a key volume builder.

The company says it was “prudent to be aggressive” clearing inventory during the second half of 2003, ending the year with inventories 6.8% lower.

Management said shipments of in-line product started to increase at the end of Q4, with some of it pull-forward from January. The backlog number was said to have steadily improved through the back half of the year and actually went positive in January. European bookings increased 10% at year-end, with the company’s first subsidiary covering Germany, posting double-digit gains in orders for the first quarter of 2004.

The company is also getting a handle on expenses, cutting the cost of sales and other selling expenses. Fourth quarter selling expenses were 10% of sales versus 12% in the year-ago period, with advertising expenses reduced to 6% of sales versus 9.5% in Q4 2002. One cut includes the elimination of “lesser regional shows” from the budget.

SKX sees earnings per share for the first quarter in the 5 cents to 10 cents per share range on sales of $190 million to $200 million. While the company was reluctant to give full year guidance, they did say they expect licensing revenues to deliver 7 cents to 8 cents per share in pre-tax profits for the year.


>>> All the good news here must be under lock and key because public information — other than inventory reduction — doesn’t signal a recovery