Skechers Shares Plunge 42% on Warning of Loss
Manhattan Beach shoemaker Skechers USA Inc. warned Monday that it would post its first-ever loss as a publicly traded concern in the fourth quarter, and it’s clear that it would take some fancy footwork to turn things around.
The company’s shares plunged 42% on the news.
Skechers executives said revenue for the three months ended Dec. 31 would be $160 million to $170 million, rather than the $195 million to $205 million previously forecast. That will result in a loss of 25 cents to 35 cents a share, rather than previous estimates of a 5-cent-a-share profit.
“We believe that our record sales growth for the past two fiscal years, coupled with tough market conditions, presented us with challenges in the second half of 2002,” said David Weinberg, the company’s chief financial officer. “The weak economic environment has been characterized by soft consumer spending, price concessions and fear of inventory buildup at retail.”
The cost of moving to a new Belgium warehouse and tepid sales overseas contributed to the company’s woes, Weinberg said.
Investors punished Skechers mightily, sending its shares tumbling $5.03, to $7.02, making it the biggest percentage loser Monday on the New York Stock Exchange. Though the lagging economy and lack of consumer interest in footwear and apparel have hurt many manufacturers this year, some on Wall Street suggested that Skechers in particular faces an uphill battle in turning around its business next year.
“At this point, given how much they’re taking down their guidance, I don’t think this is just a function of a difficult environment,” said Mitch Kummetz, an analyst with Wedbush Morgan Securities in Los Angeles. “It’s a huge miss.”
Part of what has plagued many shoe companies this season has been consumers who felt they over-shopped during the last few years.
Adding to the problem, especially for companies with a large youth base such as Skechers, has been a retro fashion trend. For companies such as Nike Inc., Adidas-Salomon and K-Swiss Inc., that has meant reviving the old looks -- and lower prices -- of more basic footwear and moving away from the more expensive sneakers and loafers on which many companies had come to rely.
The trend has been particularly troublesome for Skechers, Kummetz said, because the 10-year-old company has no retro look of its own to revive. What’s more, the major companies’ lower prices eat away at one of Skechers’ main selling points: lower prices.
“One of the major reasons to buy Skechers has been removed from the equation,” Kummetz said. “And they’re not an authentic brand as far as retro goes, so they have two strikes against them.”
Without a fashion breakthrough, Skechers’ best hope may be in waiting for fashion to take a turn back toward more expensive footwear, Kummetz said. That would allow the company to capitalize on its ability to produce similar-looking shoes at lower prices. “Higher-end fashion will be attractive to the consumer again, and that will play into Skechers’ hands,” Kummetz said. “I just don’t see that happening anytime soon.”
For the year, Skechers said it expects earnings per share of $1.04 to $1.14, compared with the current First Call consensus estimate of $1.45 per share. Sales are expected to be $922.7 million to $932.7 million, the company said.
