Skechers U.S.A., Inc. (SKX)

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Q4 2008 Earnings Call

February 18, 2008 4:30 pm ET


Andrew Greenebaum - Integrated Corporation Relations

David Weinberg - EVP and CEO

Frederick Schneider - CFO


Jeff Mintz - Wedbush

Sam Poser - Sterne, Agee



Good afternoon, ladies and gentlemen. Thank you so much for standing by. And welcome to the SKECHERS USA, Inc. fourth quarter 2008 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). As a reminder, the conference is being recorded today, Wednesday, the 18th of February 2009.

I will now turn the conference over to Mr. Andrew Greenebaum. Please go ahead.

Andrew Greenebaum

Good afternoon and thank you, everyone, for attending SKECHERS’ fourth quarter and year-end 2008 results conference call.

I’ll now read the Safe Harbor statement. Certain statements contained herein, including without limitation, statements addressing the beliefs, plans, objectives, estimates or expectations of the company or future results or events may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. Such forward-looking statements involve known and unknown risks, including, but are not limited to the general economic and business conditions and conditions in the retail industry. There can be no assurance that the actual future results, performance or achievements expressed or implied by such forward-looking statements will occur.

Users of forward-looking statements are encouraged to review the company’s latest Annual Report on Form 10-K, its filings on Form 10-Q, management’s discussion and analysis in the company’s latest Annual Report to stockholders, the company’s filings on Form 8-K and other Federal Securities Law filings for a description of the other important factors that may affect the company’s business, results of operations and financial condition.

And with that, I’d like to turn the call over to SKECHERS’ Chief Operating Officer, David Weinberg. David?

David Weinberg

Thank you, Andrew. Good afternoon and thank you for joining us today to review SKECHERS’ fourth quarter and fiscal 2008 year-end results. As always, we will open the call to questions following our prepared comments.

Year-end 2008 net sales were 1.441 billion, a new record for annual revenues. And fourth quarter 2008 sales totaled $298.1 million. Our record annual sales are primarily the result of significant increases in our international wholesale sales over the past year, as we continue to build our business on a global basis.

Net income for 2008 was $55.4 million. Net loss for the fourth quarter of 2008 was $20.4 million. Diluted net earnings per share were $1.19 for the full year with a net loss of $0.44 for the fourth quarter of 2008.

The shortfall in earnings in the fourth quarter is primarily due to significant margin pressure in our domestic wholesale business. An extremely weak retail environment caused U.S. retailers’ comps to be down significantly, the closing of doors from some of our retail partners, a number of department and specialty store bankruptcies, a reduction in open-to-buy, a decrease in at-once orders and an increase in cancellations. Due to this, we began managing our inventory levels down at reduced prices and took reserves of over $15 million. We believe this fast process and the challenges at retail will continue to have a negative impact on our sales and profitability in the first half of 2009.

We do believe upon completion of this process, we will return to profitability in the second half of the year. We also believe we will emerge as an even stronger company due to our well-known and trusted brand, wide range of products at reasonable prices and our ability to fill sizes and at-once needs.

Now, I would like to expand on our 2008 business within our three operating segments; Domestic Wholesale, International and Retail. Domestic wholesale decreased by 3% for the full year and by 1% for the fourth quarter.

As discussed, the decrease in sales is the result of the continued downturn in the economy, which has caused many retailers to order fewer products, shutter doors and even in some cases, file for bankruptcy as consumers have significantly cut back on shopping.

In this difficult economic environment, we have maintained our market share and grown in several lines. In the fourth quarter, we experienced double-digit growth in a key women's line, SKECHERS Kids, Unlimited by Marc Ecko and men’s and women’s Zoo York lines. We also experienced single-digit growth in several of our other men’s and women’s SKECHERS and fashion lines.

We are continuing to add fresh styles to our Heritage line and have seen these new looks widely embraced by accounts, both in our recent pre-lines and at the WSA. Our Fashion division is up double digits for the quarter. This is in part due to the addition of BEBE SPORT and Punkrose in 2008. BEBE SPORT is through a licensing agreement with the fashion company BEBE, while Punkrose is a junior’s line we purchased.

We believe these lines will grow as we continue to design fresh styles and support the brands with marketing. We showcased a new line to the industry at last week's WSA, Tapout. We recently acquired the license to sell the footwear of this well-established mixed martial arts brand and believe this sport represents an emerging category in the U.S. Each of our brand is supported by targeted marketing that may include print, television and outdoor advertising.

In 2008, this advertising included the power of American Idol winner and Recording Artist, David Cook, for SKECHERS; High School Musical stars, Ashley Tisdale and Vanessa Hudgens for Red by Marc Ecko, and Eva Longoria for BEBE SPORT. Along with the celebrity advertisements, we also executed lifestyle and product-focused print and television campaign.

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