Skechers USA Inc. (SKX), the designer, marketer and distributor of footwear, recently reported fourth-quarter 2010 results that missed Zacks’ expectation.
The quarterly earnings of 7 cents a share missed the Zacks Consensus Estimate of 15 cents, and plunged 87.9% from 58 cents delivered in the prior-year quarter.
Skechers, which competes with Deckers Outdoor Corporation (DECK), stated that total net sales for the quarter soared 17.0% to $454.6 million from the prior-year quarter, driven by considerable growth across the domestic wholesale and international businesses and retail stores. The company’s persevering policy toward liquidation of excess inventory also contributed to revenue growth.
The reported revenue surpassed the Zacks Consensus Estimate of $412.0 million.
The domestic wholesale business went up 4.0%, whereas the international wholesale business surged 64.0 % during the quarter. Total domestic and international retail sales climbed approximately 16.0%, reflecting an increase of 12.0% in domestic sales and a rise of 52.0% in international sales. The combined retail same-store sales inched up 3.5%.
Skechers, which holds a 60.0% market share of the toning shoe category in the U.S., indicated that the market was flooded with lower-priced toning product. Consequently, total inventories at the end of the quarter under review were $398.6 million, reflecting an increase of $174.5 million from December 31, 2009.
However, management expects to clear the inventory pile-up in the coming six months through healthy backlogs, wide international business and company-owned retail stores.
Gross profit inched down by 2.7% to $184.2 million, whereas the gross profit margin contracted 820 basis points to 40.5%, pulled down by sales of lower margin products through distribution channels coupled with lower retail margins due to promotional activities.
During the quarter, Skechers opened 12 company-owned retail stores bringing the total store count at the end of the quarter to 287. The company also opened 13 distributor-owned or licensed Skechers retail stores and closed three stores during the quarter. At the end of the quarter, there were 145 distributor-owned or licensed retail stores.
The company continues to focus on new lines of products, opening of additional Skechers retail stores and distribution channels and the development of international distribution agreements to increase its sales and profitability.
Moreover, with growing operations in Chile, Hong Kongand China, 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 $233.6 million, long-term debt of $51.7 million and shareholders’ equity of $945.8 million, including non-controlling interest at the end of the quarter. Capital expenditures were nearly $31.0 million for the quarter.
Currently, we maintain a long-term ‘Underperform’ recommendation on the stock. Moreover, Skechers holds a Zacks #5 Rank, which translates into a short-term ‘Strong Sell’ recommendation.
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