Skechers USA Inc. (SKX), the designer, marketer and distributor of footwear, recently reported third-quarter 2011 results. Skechers delivered earnings of 8 cents a share, down 89.2% from the prior-year period as weak top-line performance weighed upon its bottom-line results. However, the quarterly earnings fared better than the Zacks Consensus Estimate of 1 cent a share.
On a reported basis, including one time items, Skechers delivered earnings of 17 cents a share.
Skechers, which competes with Deckers Outdoor Corporation (DECK), stated that total net sales for the quarter dropped 25.7% to $412.2 million from the prior-year quarter, reflecting lower sales of high priced toning shoes and sluggish performances across other footwear lines. The reported revenue also came below the Zacks Consensus Estimate of $465 million.
During the quarter, Skechers maintained its aggressive inventory offloading stance in order to right-size its inventory. Consequently, total inventories at the end of the quarter under review were $238.4 million, reflecting a decrease of 40.2% from December 31, 2010.
Gross profit plunged 30.7% to $175.2 million, whereas the gross profit margin contracted 310 basis points to 42.5% compared with 45.6% in the year-ago quarter. The decline reflected sluggish sales coupled with lower average selling price.
Management remains optimistic for the coming quarters despite soft results as it continues to focus on new lines of products, opening of additional Skechers stores this year and increasing distribution channels with the development of international distribution agreements to boost its sales and profitability.
Moreover, international business remains a significant growth driver for the company’s sales and registered a double-digit growth in the quarter. 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 $248 million, long-term debt of $79 million and shareholders’ equity of $905 million, excluding non-controlling interest of $38.3 million at the end of the quarter.
Currently, we maintain a long-term Underperform recommendation on the stock. Moreover, Skechers holds a Zacks #4 Rank, which translates into a short-term Sell rating.
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