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Isabel Zhong/MEDILL

Skechers' stock price jumped more than 7 percent when markets opened Thursday.

Strong domestic sales bolster funky shoemaker's earnings

by Isabel Zhong
Oct 25, 2012

A global leader in “lifestyle” footwear, Skechers USA Inc. has attracted attention with its high-profile array of past and present celebrity endorsers, including Kim Kardashian and Britney Spears. Now, the shoemaker is shining a spotlight on the athletic track with a new line of “performance shoes.” The move appears to be paying off.

Skechers announced solid results after markets closed Wednesday as strong domestic sales, bolstered by its expanding athletic division, more than offset weak revenues from the company’s international operations.

The Manhattan Beach, Calif.-based company earned $11 million, or 22 cents per diluted share, up 33 percent from $8.3 million, or 17cents per diluted share, in the same period last year.

Interest costs and other expenses increased almost ten-fold to $9.9 million from the same quarter last year. On an operating basis, the company earned $20.3 million, or 41 cents per diluted share, which exceeded the forecast of 25 cents per share by analysts surveyed by NASDAQ.

“Although sales came under fire during the global downturn, we believe the firm weathered the storm just fine and will continue to resume its growth pattern,” Morningstar analyst Jeremy Cohen wrote in a research report.

Skechers’ third-quarter sales increased a modest 4.2 percent to $429.4 million from $412.2 million a year ago. It was a turnaround from a massive 26 percent decline last year. The shoemaker generated record third-quarter sales in 2010.

“Sales improved in our domestic wholesale division and company-owned retail stores as a result of growth in many of our men's, women's and kids' lines, including strong sales in our expanding performance division,” said David Weinberg, Skechers’ chief operating officer and chief financial officer, in a Wednesday call with analysts.

However, a “very challenging European retail environment” and a weak euro adversely affected revenues from Europe, he said. This significantly hindered the performance of the shoemaker’s international division. Croc Inc. and Wolverine Worldwide, two industry peers that announced earnings within the past week, also suffered from weak revenue across the Atlantic.

Looking forward, company executives said they are expecting low to mid double-digit earnings growth in the fourth-quarter across all operating divisions, including the lackluster international unit.

“The combination of our recent growth, the coming holiday season, and the reaction to our new product divisions, gives us confidence that Skechers is experiencing a resurgence on a global basis,” said Weinberg.

A slight revival in euro zone consumer confidence, which inched up 0.3 points to -25.6 in October, may be a positive sign for the company’s sluggish European sales, which make up around 30 percent of total sales.

For the first nine months, Skechers earned $5.6 million, or 11 cents per diluted share, a swing from a net loss of $9.8 million, or 20 cents per diluted share, in the year-ago period. However, revenues dropped more than 11 percent to $1.17 billion from $1.32 billion.

 The company's shares opened at $17.86 Thursday, up 7.5 percent, or $1.25.