Skechers Posts Q2 Loss on 14 Percent Revenue Slump

“Second quarter results were impacted by several factors,” said David Weinberg, chief operating officer and chief financial officer, in a statement. “First, we were up against a record second quarter in 2010, and we aggressively reduced our excess toning inventory during the second quarter by selling two million pairs of our original Shape-ups for a loss of $21.0 million. We also recorded a $4.4 million reserve for additional product, which we believe reflects net realizable value. We made a decision to accelerate the clearance on early generation Shape-ups product in order to eliminate the overhang of excess inventory. We believe this will expand the sales of our new toning and performance product, which are showing positive results at retail. The impact of these two transactions was a loss of $0.31 per diluted share and a reduction of gross margin to 33 percent, which otherwise would have been 41.5 percent. We feel this was a big step in reaching our goals for the year, which include right-sizing our inventory, bringing new product to market, and getting our overhead in line with anticipated sales for 2012.”

For the six months ended June 30, 2011, net sales were $910.6 million compared to net sales of $997.6 million in the first six months of 2010. Net loss was $18.1 million or a loss of 38 cent per diluted share as compared to net earnings of $96.5 million or earnings of $1.97 per diluted share for the first six months of 2010.

Gross profit for the second quarter of 2011 was $143.3 million or 33.0 percent of net sales compared to $237.6 million or 47.1 percent of net sales in the second quarter of last year. Gross profit for the first six months of 2011 was $335.9 million or 36.9 percent of net sales versus $475.1 million or 47.6 percent of net sales in the first six months of 2010.

Robert Greenberg, Skechers chief executive officer, commented: “Every business faces challenges as they grow and at this time last year we were experiencing record growth and were the leaders in an explosive new category of footwear. Recently we have leveraged our experience and learning in the toning category to develop new footwear in both our core lifestyle lines and in our rapidly evolving performance division. This product was delivered to our own Skechers retail stores in the second quarter and began reaching our key accounts in June and July. The initial sell throughs have been strong, and we believe will accelerate as the marketing begins for back to school. Dancing with the Stars host Brooke Burke is the face of our womenâ€s lightweight toning and running product, and we have several new commercials for our kids lines. We also recently signed Danny Woodhead, the New England Patriots exciting young running back, to appear in a multi-level marketing campaign for our Skechers Resistance footwear. Kim Kardashian is appearing in Skechers broadcast, print and outdoor advertising globally. We are pleased with our international sales, which grew by double digits, and our retail business, which remains steady with new stores opening in the United States and around the world. We believe Skechers continues to be a brand in demand globally, and there are many opportunities to grow our business in the coming years.”

Weinberg added: “We believe that while the second half of 2011 will pose more challenges, we also see growth opportunities in both the international and retail businesses. We are pleased with the reception of our new product offerings for men, women and kids delivering in our stores and to accounts now. With our Holiday 2011 and Spring 2012 product being reviewed by our customers this month during prelines, we believe we are well-positioned for the future.”