Shape-up toning shoes were all the rage in 2010.
They gaveSkechers (
) a big sales lift and, then, thump. They fell flat.
Skechers would just as soon forget about the product's
spectacular fall, which caused a profit loss of 60 cents a share
in 2011 on a 20% drop in sales as retailers cleared out excess
inventory at discounts.
As they were clearing out Shape-up inventory, wholesale
customers were reluctant to place big orders with Skechers on
Skechers' wholesale customers include department stores, such
) andDillard's (
) and footwear specialty stores, such as Famous Footwear.
"Skechers was put in the penalty box for quite a while.
Retailers didn't want to take the risk of getting slammed again,"
said Sterne Agee analyst Sam Poser.
Skechers went back to the drawing board.
"They redeveloped a lot of their product lines, and they came
up with new product in a lot of different segments," said analyst
Jeff Van Sinderen of B. Riley & Co. "That product has been
gaining strong traction for the last couple of quarters."
Running shoes were among the new lineup, part of a new
performance division that also includes lightweight, active and
sports shoes for men, women and kids.
Without one mention of Shape-ups in its last earnings report
or conference call, Skechers reported a 39% jump in
fourth-quarter sales vs. the prior year, to $395.6 million.
From dress and casual footwear to running shoes, its products
have lately been selling well in wholesale channels and in the
company's 350-plus company-owned stores.
Same-store sales at company-owned stores rose in the
low-double-digits in the fourth quarter while international
business leapt 30%.
In the year-end report Feb. 13, CEO Robert Greenberg called
2012 "a remarkable year for Skechers" as the Manhattan Beach,
Calif.-based company broadened product lines and grew earnings
132% over 2011's 60-cent loss.
Sales, however, were down 3% for the year as excess inventory
continued to be liquidated, especially in the first half of the
Earnings in the fourth quarter grew 121% to 8 cents a share.
In the same quarter of 2011, earnings had plummeted 657% for a
39-cent per-share loss. For all of 2011, profit fell 122% to a
loss of 60 cents a share.
Greenberg said the first quarter of this year got off to "a
strong start." Shares are up almost 25% since the first of the
Business with one top wholesale customer,J.C. Penney (
), has suffered, however, due to Penney's own internal problems.
David Weinberg, Skechers' chief operating and financial officer,
told analysts the company expects some decline in the first
quarter and is unsure how Penney's business will unfold the rest
of the year.
Still, analysts expect first-quarter profit to climb from last
year's 7-cent loss to 19 cents a share. For the full year, they
see earnings rising 442% to $1.03. Revenue is expected to grow
17% to $1.82 billion.
First-quarter results have been postponed following the
resignation earlier this month of Skecher's auditor, KPMG.
Federal prosecutors have charged KPMG's lead audit partner in Los
Angeles with passing inside tips on Skechers andHerbalife (
KPMG has stated that it has no reason to believe Skechers'
financial statements were materially misstated, and Weinberg
agreed, adding in a statement that the quarter should show
Shape-ups' rise and fall "seems like ancient history," said
Van Sinderen, who noted that the curved-bottom shoes are "pretty
much gone now."
Skechers led the toning category and so was the hardest hit
when sales started falling for all participants, including
Reebok, Avia and New Balance, among others.
In the 12 months ended February 2012, industrywide toning
sales in the U.S. fell 58% to $306.5 million, according to the
NPD Group. They fell another 77% in the year ended February 2013,
to $70.4 million.
Skechers was especially hobbled by claims that it had used
deceptive advertising in claiming that the shoes helped wearers
gain muscle and lose weight.
The company agreed to pay $50 million to settle federal and
"Now, they have a broader mix of good product," said Poser.
"Not one item will crash and burn and cause the whole thing to go
down the way toning did."
Skechers is actively promoting its expanded product line. New
commercials were aired late last year for GOwalk, Daddy's Money
and SKCH+3. And its Bobs line was supported with actress-model
Brooke Burke of "Dancing With the Stars."
The company's Relaxed Fit was supported with three spots
featuring sports icons Mark Cuban, Joe Montana and Tommy
This year's Super Bowl aired a new ad for the new GOrun2
running shoe, pitting man against cheetah to highlight the shoe's
"They're gaining traction in pretty much every segment of the
business," Van Sinderen said. Performance shoes such as GoRun and
GoTrain are selling especially well, he adds. "Product is back on
Meanwhile, Skechers plans to open at least 30 new stores this
year. And it plans to roll out apparel to retail stores and
wholesale channels on a limited basis to test the waters.
Asked in a conference call how big the apparel business could
get, Weinberg said, "Oh, I hope it's about $1 billion. But I have
no idea. I mean, apparel is pretty big and it could be