Skechers Posts Profit but Issues Warning

Skechers USA Inc. said on Wednesday that third-quarter profit failed to meet analysts’ estimates and predicted it would lose money in the fourth quarter, sending its shares down 11%.

The Manhattan Beach shoemaker earned $6 million, or 15 cents a share, contrasted with a loss of $5.9 million, or 15 cents, a year earlier. Sales rose 16% to $257.7 million.

Earnings were “adversely affected” by the fact that Skechers had to pay U.S. taxes at a rate of 60% in the quarter, rather than the typical 42%, because it had misjudged the amount of foreign losses that it could write off, Chief Financial Officer David Weinberg said.

If its income had been taxed at 42%, Skechers’ profit would have been 21 cents a share, surpassing analysts expectations. Skechers is “reevaluating its existing tax structure,” company officials said in a statement.

Analysts surveyed by Thomson First Call expected earnings of 20 cents a share.

“We are pleased with the performance of our business in 2004 and its direction as we head into 2005,” said Weinberg, citing strong back-to-school sales and new lines of business slated for next year including Skechers sleepwear and underwear. “We believe we are in a solid financial position and poised for growth.”

After initially plummeting more than 20%, Skechers stock closed at $11.89, down $1.53, on the New York Stock Exchange. The stock has gained 46% since the start of 2004.

“There was an overreaction by the street today,” said Vera Van Ert, senior research analyst with Wedbush Morgan Securities in Los Angeles, who has a ‘hold’ rating on the stock. “It was a combination of a little surprise about the tax rate and the introduction of the lower guidance for the fourth quarter.”

Skechers, which makes shoes, including colorful sneakers, for men, women and children, saw business pick up in late 2003 and momentum continue into early this year. Second-quarter profit beat analysts expectations on higher sales and better control over inventory and expenses, company officials had said.

This year, Skechers introduced new shoe lines and a new advertising campaign featuring singer Christina Aguilera.

Analysts on Wednesday were concerned when Skechers predicted a loss for the fourth quarter of 3 to 8 cents a share on revenue of $175 million to $185 million.

But the fourth quarter isn’t usually a strong one for shoe retailers, analysts said, as shoes aren’t popular holiday gifts.