Skechers USA, Inc. announced net sales for the second quarter of 2003 decreased 10.7% to $229.3 million compared to $256.7 million in the second quarter of 2002. The net loss for Q2 was $2.1 million versus earnings of $21.3 million in the second quarter of the prior year. Net loss per diluted share was $0.06 on 37,782,000 shares outstanding compared to net earnings of $0.52 per diluted share on 41,909,000 diluted shares outstanding in the second quarter of 2002.
For the six-month period ended June 30, 2003, net sales were $437.9 million compared to net sales of $501.6 million in the first six months of the prior year. Net earnings were $6.3 million, as compared to net earnings of $41.5 million in the first six months of the prior year. Diluted earnings per share in the first six months were $0.17 on 38,042,000 diluted shares outstanding versus diluted earnings per share of $1.05 on 40,187,000 diluted shares outstanding.
Gross profit for the second quarter of 2003 was $89.6 million compared to $105.8 million in the second quarter of last year. Gross margin was 39.1 percent compared to 41.2 percent in the second quarter of 2002. Gross profit for the first six months of 2003 reached $179.9 million, or 41.1 percent of sales versus $208.3 million, or 41.5 percent of sales in the first six months of the prior year.
“Aggressive advertising expenses exacerbated by the difficult retail environment, abnormal weather conditions and higher unemployment negatively impacted our sales, margins and earnings in the second quarter of 2003,” began David Weinberg, chief financial officer of Skechers USA, Inc. “Further, as a result of reduced earnings projections for fiscal year 2003, projected worldwide tax benefits have decreased, adversely impacting second quarter earnings. The fiscal year 2003 worldwide tax rate is projected to be approximately 43 percent.
“With respect to inventory levels, we diligently attempted to sell through inventory with aggressive advertising to generate at-once orders during the second quarter. We were not as successful as we had anticipated in this endeavor,” continued Mr. Weinberg. “Additionally, we were not able to achieve our inventory goals due to early shipments of new inventory from the factories during the second quarter. We will continue to work through our inventory levels, which will have an adverse impact on margins in the short term. On a positive note, at June 30, 2003, our total commitment to inventory, which includes our units on hand and in production, was only 2.2 percent higher than last year, we have seen sales pick up slightly in the latter part of the second quarter, and we believe that inventory will be in-line by year-end 2003.
“Building our business in the newly launched European subsidiaries in Spain, Portugal, Canada and the Benelux Region also impacted our net earnings,” continued Mr. Weinberg, “but our product has been well-received by accounts and consumers in the global countries where we directly manage our business as well as in those areas handled by distributors. While growth has been slower than anticipated, we expect these subsidiaries to be an integral part of our earnings goals for the future, and we continue to believe international will be a key growth area for Skechers.”
Mr. Weinberg added: “In the domestic market, it is too early to make a prediction on back-to-school sales, but we have received positive feedback from most of our major accounts on several of our lines – including key styles from Skechers Sport, Skechers USA and Somethin' Else from Skechers. We are continuing to support the brand with a strong marketing and advertising effort for the fall.”
Robert Greenberg, Skechers chief executive officer, said: “Skechers' focus has been and always will be developing exceptional lifestyle products that target style-conscious men and women around the globe. Recently, we have expanded our scope with licensed products that reflect our image. Consumers can shop for Skechers Sport socks at major department stores now, for Skechers children's apparel in department stores across the country in August, and in the late fall for adult Skechers Sport watches as we grow Skechers into a head-to-toe lifestyle brand. We believe the Skechers brand continues to be strong and viable, which should provide us with the ability to grow our business in a stronger retail environment.”
The Company now expects third quarter 2003 sales to be in the range of $205 million to $215 million and a loss per share of $0.05 to diluted earnings per share of $0.05.
Skechers U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(unaudited)
(In thousands, except per share data)
Three Months Ended June 30,
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2003 2002
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Net sales $229,277 100.0% $256,652 100.0%
Cost of sales 139,683 60.9% 150,866 58.8%
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Gross profit 89,594 39.1% 105,786 41.2%
Royalty income, net 454 0.2% 317 0.1%
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90,048 39.3% 106,103 41.3%
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Operating expenses:
Selling 28,838 12.6% 21,371 8.3%
General and administrative 61,073 26.6% 48,853 19.0%
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89,911 39.2% 70,224 27.4%
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Earnings from
operations 137 0.1% 35,879 14.0%
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Other income (expense):
Interest (2,438) -1.1% (2,565) -1.0%
Other, net (36) 0.0% 483 0.2%
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(2,474) -1.1% (2,082) -0.8%
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Earnings before
income taxes (2,337) -1.0% 33,797 13.2%
Income tax provision
(benefit) (211) -0.1% 12,539 4.9%
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Net earnings
(loss) $(2,126) -0.9% $21,258 8.3%
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Net earnings per share:
Basic $(0.06) $0.57
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Diluted $(0.06) $0.52
