Skechers Shares Plunge on News of Quarterly Loss

Investors whacked 20% off the price of Skechers USA Inc.’s stock Thursday after the shoemaker said it lost more than $2 million in the second quarter as it continued to expand while sales sagged.

The Manhattan Beach company, which makes a wide variety of footwear, lost $2.1 million, or 6 cents a share, in the quarter ended June 30, in contrast with a profit of $21.3 million, or 52 cents, in the year-earlier period.

Analysts polled by Thomson First Call had expected Skechers to break even. The company also said it expected to lose 5 cents a share this quarter, down from its profit of 35 cents in the same period last year.

Skechers’ sales fell 11% to $229.3 million, compared with $256.7 million the prior year.

For the current quarter, Skechers is predicting sales of $205 million to $215 million, compared with $261.1 million in the third quarter last year.

Investors quickly began unloading Skechers stock, which closed at $6.50, down $1.66, on the New York Stock Exchange.

Skechers attributed the quarterly loss partly to “abnormal weather,” a weak retail environment and higher advertising and marketing costs.

Trying to spark sales, Skechers boosted its advertising and marketing spending to 10.5% of sales, compared with 6.7% of sales in last year’s second quarter. The fact that Easter fell in the second quarter this year also caused those expenses to be higher, the company said.

The company also said inventory at the quarter’s end was 56.2% higher than the year before. However, it said sales did pick up slightly at the end of the quarter and inventory should be in line by the end of the year.

Analyst Michael Pachter of Wedbush Morgan Securities said Skechers should rethink its strategy and slow its growth until results improve.

“I can buy into their growth plan if they can demonstrate they can deliver results, but they haven’t been doing it for the last several quarters,” he said.

Chief Financial Officer David Weinberg said the company has no reason to panic.

“Skechers has a strong brand, potential for growth and the capacity to generate cash,” he said. “I don’t know that anybody would assume it’s doom and gloom, other than the stock price. We think we have a healthy company that’s had a misstep.

“We will reevaluate and adjust overhead as needed over the next six months,” Weinberg said.Skechers, which ratcheted up its growth plans a couple of years ago as the market was slackening, is continuing to expand. The company opened 13 stores in the first half of this year. It plans to open 11 stores in the U.S. this quarter and three in Europe.

The company also has been opening international subsidiaries.

“We’re waiting for all these expansion initiatives to get started and see how far they can take us,” Weinberg said.