Skechers USA swung to a first-quarter loss, but results were in line with expectations and the company said it expects to return to profitability later this year. The loss of $3.7 million, or 7 cents per share, compared to a profit of $11.8 million, or 24 cents, in the year-ago quarter. Revenue fell 26.2 percent to $351.3 million.
Shares rose xx percent last week as results exceeded Wall Street's consensus estimates that called for a loss of 27 cents a share on sales of $336.4 million as well as due to the improving outlook.
On a conference call with analysts, David Weinberg, COO and CFO, noted that clearing excess toning inventory resulted in a 40 percent decrease in pairs sold during the quarter. On the positive side, that resulted in an improvement in average price per pair of 5.8 percent, or $1.15, as more in-line product was delivered, ultimately helping gross margins to improve to 44.3 percent from 40.3 percent a year earlier. Although its backlogs are down signal digits year-over-year, they have continued to improve throughout the quarter, he further noted.
In it domestic business, first-quarter sales decreased 36.8 percent in the quarter due to a combination of a difficult comparisons with strong sales a year ago due to the clearing of excess toning inventory during the same period last year, as well as moving away from product not branded Skechers.
Weinberg said the company has received positive feedback on many of its lifestyle footwear lines for men, women and kids “and believe that we will see improvements in our key divisions as this fresh product becomes available throughout the year.” Also, a positive response to its Mr. Quigley Super Bowl commercial, attention around its endorser Meb Keflezighi placing first in the US Olympic Marathon Trials wearing GORun shoes, and positive reviews from fitness magazines, including Competitor and Women's Running, led to “strong, initial sales” for its Skechers GOrun and GOwalk product. Said Weinberg, “We are excited about the additional lines on the GO platform that will be launched later this year.”
Its International Distributor and Subsidiary business decreased by 30 percent for the quarter and was negatively impacted by challenging economies in several European markets and a shift of its business in Japan from a third-party distributor to a wholly-owned subsidiary and the restructuring of its business in Brazil. Both countries are expected to begin to positively impact its International sales in the next year. Areas performing well included Russia, the Middle East, South Korea, and Chile.
Skechers' company-owned Retail business revenues increased 6 percent in the quarter, with Domestic sales improving 7 percent due to an increase of 43 stores. International retail sales were down 1 percent. Comps were down 3.7 percent domestically and 10.4 percent internationally. Weinberg noted, however, that at company-owned Skechers concept stores, which are the first to receive new product across all its divisions, comps were positive in dollars and pairs sold increased double digits in the quarter.
Weinberg also noted that the promising response to its newer lifestyle and performance offerings came despite significantly lower advertising and marketing expenditures. Its selling expenses were reduced by $7.2 million in the quarter with total expenses down $17.8 million. Inventory was trimmed more than $161 million from a year ago.
The CFO said Skechers' goal this year is to return to profitability and “significant strides” toward that objective were made in the first quarter. Weinberg added, “We expanded the reach of our first performance line, Skechers GOrun, and the accompanying Skechers GOwalk, with the launch into more Skechers Retail Stores and third-party retailers in the United States and around the world. The sell-throughs have been strong and we are now filling additional orders.”
