In the first quarter, Skechers booked a 26.2 percent decline in consolidated sales to $351.3 million, with a 40 percent drop in the total pairs sold. Sales in the first quarter of 2011 were bloated by the clearing of excess inventory of toning shoes sold at reduced prices. The clearance helped the group improve the average selling price per pair of its footwear, which rose by 5.8 percent year-on-year in the first three months of 2012.
International sales through the group's network of distributors and subsidiaries declined by 30.0 percent largely due to the weakness of several European economies, 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 group expects the changes in Japan and Brazil to underpin sales next year. The Japanese subsidiary has placed its first orders and delivery is scheduled in the third quarter.
Among foreign markets, the group continued to perform well in the Asia-Pacific region, led by South Korea, Australia, New Zealand, Indonesia and Hong Kong. South America was another bright spot with strong sales in Chile and Panama. Skechers booked positive results in Russia, where it launched its performance shoe, GOrun, in the country's second-largest athletic chain, and in the Middle East.
In the U.S., Skechers' sales dropped by 36.8 percent. The group stressed that it had received positive feedback on its lifestyle footwear lines for men, women and children, so it expects an improvement in sales as these products come on the market.
The group's directly operated stores increased revenues by 6.0 percent, supported by the opening of new stores, with domestic sales up by 7.0 percent and international revenues down by 1.0 percent. At the end of March, the group had 339 company-owned stores. It opened 11 stores in the U.S during the quarter, and another 10-15 openings are scheduled this year. Comparable store sales were down by 3.7 percent at home and by 10.4 percent abroad.
Skechers said that its performance and fitness collections - GOrun and GOwalk - have enjoyed strong initial sales and additional GO products are scheduled to be launched in the third quarter. The group is currently testing the products in its own stores and in some wholesale accounts such as Shoe Carnival, Famous Footwear, Finish Line and Zappos.
In a conference call, the group's chief operating and financial officer, David Weinberg, said that international markets offer significant growth opportunities for these collections. “I think internationally it is going to be very, very big for us,” he said.
The expansion of the performance lines in the U.S. is limited by the presence of strong competitors. But the group is building up its presence in sporting goods stores in markets such as Brazil, Japan, South Korea and some European markets. Weinberg added that the group does not have enough GOrun and GOwalk products to meet demand. He said that the group's other fitness, active and sport lines are also performing well.
Weinberg declined to forecast sales for the GO product line but admitted that selling up to 1 million pairs this year is possible, representing about $40 million in wholesale revenues. The broker Auriga estimates that Skechers could sell 2.5-3.0 million pairs in 2013, generating revenues of about $100 million.
Skechers said that its order backlog is down after significant cancellations received last year but that the situation is improving and is starting to turn positive in international markets and with some large American clients. The company's inventory stood at $214.6 million at the end of March, $11.8 million less than at the end of 2012 and more than $161 million less than a year earlier.
The quarterly gross margin widened to 44.3 percent from 40.4 percent thanks to higher selling prices, but the company booked a loss from operations of $4.4 million against a $15.3 million profit a year earlier. The bottom line produced a net loss of $3.7 million compared with a $11.8 million profit. Skechers believes it could return to a profit in the fourth quarter. Financial analysts see the group finishing the year slightly above break-even with sales approaching $1.5 billion.