Skechers USA Inc. (SKX), the designer, marketer and distributor of footwear, recently reported first-quarter 2011 results that missed the Zacks Consensus expectation.
The quarterly earnings of 24 cents a share missed the Zacks Consensus Estimate of 30 cents and plunged 79.1% from $1.15 delivered in the prior-year quarter.
Skechers, which competes with Deckers Outdoor Corporation (DECK), stated that total net sales for the quarter dropped 3.4% to $476.2 million from the prior-year quarter, reflecting a decline in the prices and demand of the toning shoes.
However, the reported revenue surpassed the Zacks Consensus Estimate of $465.0 million.
The domestic wholesale business tumbled 23.0%, whereas the international wholesale business surged 37.0 % during the quarter. Total domestic and international retail sales increased approximately 3.0%, reflecting a decrease of 2.0% in domestic sales, which were more than offset by an increase of 52.0% in international sales.
Skechers registered negative comparable-store sales of 11.2% in its domestic retail stores. However, it witnessed positive comparable-store sales of 6.8% in international retail stores.
Skechers, which holds a major market share of the toning shoe category in the U.S., indicated that the market was flooded with new competitors, who are offering lower-priced toning product. Consequently, total inventories at the end of the quarter under review were $376.2 million, reflecting an increase of $187.0 million from the prior-year period.
However, the company marked a $22.0 million fall in inventory from December 31, 2010. Further, management expects to clear the inventory pile-up in the coming quarters through backlogs, wide international business and company-owned retail stores.
Gross profit went down by 18.9% to $192.6 million, whereas the gross profit margin contracted 780 basis points to 40.4%, pulled down by the glut concessions provided by the company to clear out excess inventory.
At the end of the quarter, Skechers had 291 company-owned retail stores. It also opened 9 distributor-owned or licensed Skechers retail stores during the quarter bringing the total to 149.
The company continues to focus on new lines of products, opening of additional 25 to 30 Skechers stores this year and enhance distribution channels with the development of international distribution agreements to increase its sales and profitability.
Moreover, with growing operations in Asiaand other markets, we believe that going forward, international business will become a significant growth driver for the company’s sales. Skechers through its distribution networks, subsidiaries and joint ventures is poised to enhance its global reach in the footwear market.
Skechers portrays a healthy balance sheet with cash and cash equivalents of $197.9 million, long-term debt of $50.4 million and shareholders’ equity of $929.1 million, excluding non-controlling interest of $38.4 million at the end of the quarter. Capital expenditures were nearly $43.4 million for the quarter.
Currently, we maintain a long-term ‘Underperform’ recommendation on the stock. Moreover, Skechers holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation.
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