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

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Skechers USA Inc. (SKX)

Q3 2008 Earnings Call

October 22, 2008 4:30 pm ET

Executives

Andrew Greenebaum - Integrated Corporation Relations

David Weinberg - Chief Operating Officer, Executive Vice President & Director

Frederick Schneider - Chief Financial Officer

Analysts

Chris Svezia - Susquehanna Financial Group

Scott Krasik - CL King

Sam Poser - Sterne, Agee

Jeff Mintz - Wedbush Morgan

Richard [Kine] – Kensington

Adam Comora – EnTrust Capital

Kelly Duvall – BB&T Capital Markets

Presentation

Operator

Welcome to the Skechers USA, Inc. third quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Andrew Greenebaum, with ICR.

Andrew Greenebaum

Thank you everyone for attending Skechers third quarter 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 they are not limited to, the general economic and business condition 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 10K, its filings on Form 10Q, management’s discussion and analysis and the company’s latest annual report to stockholders, the company’s filings on Form 8K 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 conditions.

Now I will turn it over to Skechers’ Chief Operating Officer, David Weinberg.

David Weinberg

Good afternoon and thank you for joining us to discuss Skechers’ third quarter 2008 financial results. As always, we will open the call to questions following our prepared comments.

Third quarter 2008 net sales were $403.2 million, our first quarter over $400 million. Sales for the nine months ending September 3, 2008 rose 4.6% to $1.143 billion. Increased third quarter revenues were driven by strong growth in our international business which was approximately 25% of our total net sales for the quarter. The domestic environment continues to be a challenge and while we anticipated our domestic wholesale sales to be flat for the quarter, our actual results down approximately 5% is still good given the soft retail environment.

Our company owned retail stores are posting mixed results with comps down high single digits through these extremely difficult economic environment. Net income for the quarter was $28.3 million and diluted earnings per share were $0.60 for the third quarter 2008. For the first nine months of 2008 earnings were $75.8 million and diluted earnings per share were $1.62. Earnings for the third quarter 2008 reflect a tax benefit resulting from an advanced pricing agreement reached with the Internal Revenue Service during the quarter which will lower our ongoing effective annual tax rate from 34% to 27%.

The key highlights in the third quarter were: Our first quarterly revenues over $400 million, double digit sales growth in our international subsidiary business, double digit sales growth in our international distributor business, backlog up high single digits from the prior year at quarter end and a strong balance sheet with over $239 million in cash, cash equivalents and long-term investments representing over $5 per share.

We are continuing to focus on developing stylish, in demand products and aggressively marketing our brand to further grow our position in the global marketplace. This strategy allows us to achieve further strong growth in our international distributor and subsidiary businesses, develop our brand in our newest subsidiary in Brazil and successfully establish stores and operations with our new joint ventures in Hong Kong. It also allows us to maintain our position in our U.S. accounts and to open additional Skechers retail stores.

Now I would like to expand on our third quarter 2008 achievements in our three operating segments, domestic wholesale, international and retail.

For the third quarter domestic wholesale net sales increased by almost 5% from the same period last year and by 3% for the first nine months year-over-year. When we reported our second quarter financial results in July we anticipated our domestic wholesale sales to be flat based on early third quarter sales, incoming orders and backlog. Although we believe we have fared relatively well in this soft retail environment our revenues were slightly lower than anticipated due to the reduced traffic at retail and general economic conditions. It is important to note the diversity of our product offerings and our reasonable price point have always resonated with consumers and we believe this is even more so in this very difficult environment. We are pleased to see our customers gravitating to a brand they can rely on to deliver what they need at a price they can afford.

While our domestic sales are not as previously anticipated we see continued strength in our Skechers lines and believe our brand, consumer awareness and product acceptance remains strong. We are continuing to build on our proven style as well as offer fresh looks in each of our Skechers lines. In addition, we have several exciting new product initiatives coming for adults in the fourth quarter and first quarter 2009.

Within kids a new line of boys’ initiative hit retail in back to school and proved successful with a TV campaign to back it. We are launching a new girls’ initiative, Heidi High top, this quarter which has a supporting TV campaign as well. The kids business will also be supported with an apparel line to launch in fall 2009. We are encouraged to report our backlogs are up in most of our major lines.

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