In the second quarter, Skechers booked an 11.6 percent decline in sales to $384.0 million due to lower domestic and international wholesale revenues. Sales in the second quarter of 2011 were lifted by the clearing of excess inventory of toning shoes, sold at reduced prices. The top line also shrank because the group wound down its fashion brands last year.The decline was partially offset by the increase of the group's retail network and addition of its performance sports lines, GOrun and GOwalk.
Skechers achieved more than 46 percent of its sales through the U.S. wholesale channels, over 23 percent through its international subsidiaries and distributors, more than 29 percent through its domestic and foreign stores, and the remainder through e-commerce.
International sales fell by 16 percent and were affected by the economic situation in Western Europe and the weakening of the euro against the dollar. In countries where the group has direct subsidiaries, such as Europe, sales were down by 21 percent, while countries where it has distributors, revenues were down by 5 percent in the second quarter.
In a conference call, the group's chief operating and financial officer, David Weinberg, said that sales in Western Europe were “down significantly” and will remain low in the third quarter. However, there are some positive signs and some products are selling well in the region.
The situation is “very difficult” in Germany, Italy and Spain. The only Western European market that is showing resilience is the U.K., where the group could break even toward the end of the year. The U.K. is Skechers' largest European market.
Foreign sales were also disrupted by the shift in Japan from a third-party distributor to a wholly owned subsidiary and the restructuring of the group's business in Brazil.
The company said that it started shipping its first shoes to its new wholly owned Japanese subsidiary this month and expects sales in the market to be higher in the second half compared with the last six months of 2011.
The group continued to perform well in the Asia-Pacific region, led by South Korea, Australia, New Zealand, Indonesia, Taiwan and Hong Kong. Skechers booked positive results in Chile, Venezuela, Colombia and Mexico as well as Russia, Ukraine and the Middle East.The group's joint venture in China continues to grow and open stores, and is expected to become profitable by the end of the year.
In the U.S., revenues dropped by 18 percent, largely due to lower sales of toning and non-Skechers brands. The group increased the average American wholesale price per pair by 8.4 percent, or $1.61. It said it is encouraged by wholesale sales of the men's and women's performance shoes and plans to launch new lines currently selling well in company-run stores.
The group's directly operated stores increased revenues by 5.0 percent, supported by the opening of new stores. Domestic sales were up by 6.0 percent, thanks to 33 additional stores compared with a year earlier, and international revenues rose by 3.0 percent with six new stores.
At the end of June, the group had 344 company-owned stores. Comparable store sales were down by 3.4 percent at home and fell by 6.7 percent abroad. Same-store sales increased by 4 percent at concept stores where Skechers sells its new products. The company is confident that comparable sales will turn positive in the second part of the year thanks to less harsh comparison levels and solid sell-through.
The group has opened a store in Chile since the end of the second quarter and plans another five to seven openings by the end of the year. Skechers had 98 joint venture and licensed stores in Asia at the end of June and an additional 219 stores operated by distributors or licensees in other countries.
When pressed by analysts, Weinberg acknowledged that American domestic wholesale and overall retail revenues could rise by about 10 percent year-on-year in the third quarter, while international sales will remain largely unchanged due to the situation in Western Europe. He did not rule out that third-quarter sales could reach $440-450 million.
Skechers improved its second-quarter gross margin to 44.6 percent from 33.0 percent thanks to the improved quality of its inventory, strong sell-through at company-run stores and a higher average wholesale price in the U.S.
The net loss was narrowed to $1.8 million in the second quarter from $29.9 million a year earlier. The company does not rule out posting a profit in the fourth quarter but warned that it is too early to make forecasts.