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

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Skechers USA (SKX)

Q1 2013 Earnings Call

May 15, 2013 4:30 pm ET

Executives

David Weinberg - Chief Financial Officer, Chief Operating Officer, Executive Vice President, Principal Accounting Officer and Director

Analysts

Jeffrey Wallin Van Sinderen - B. Riley Caris, Research Division

Scott D. Krasik - BB&T Capital Markets, Research Division

Sam Poser - Sterne Agee & Leach Inc., Research Division

Christopher Svezia - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Greetings, and welcome to the SKECHERS USA, Inc. First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

At this point, I would like to turn the conference over to SKECHERS. Please go ahead.

Unknown Executive

Thank you, everyone, for joining us on SKECHERS conference call today. I will 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 not limited to, global, national and local economic, business and market conditions in general and specifically as they apply to their retail industry and the company.

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 filings with the U.S. Securities and Exchange Commission, including the most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all other reports filed with the SEC as required by federal securities laws for a description of other significant risk factors that may affect the company's business, results of operations and financial conditions.

With that, I would like to turn the call over to SKECHERS' Chief Operating Officer and Chief Financial Officer, David Weinberg. David?

David Weinberg

Thank you for joining us today to review SKECHERS first quarter 2013 results.

Net sales for the first quarter were $451.6 million, and earnings from operations were $15.3 million. Our first quarter 2013 sales increased by 28.6% over the same period last year.

This was the result of double-digit growth in all our revenue channels: domestic wholesale, international and our company-owned retail businesses. We view the continued growth as a testament to the strength of our brand and our fresh product offering.

Net income for the first quarter was $6.7 million, and diluted earnings per share were $0.13. We'd like to note that the combination of 2 items negatively impact our earnings per share by $0.08. First, when our short-term intercompany investments in our foreign subsidiaries were translated into U.S. dollars, the stronger dollar resulted in a foreign currency translation pre-tax loss of approximately $3 million, which is included in Other on our income statement. In addition, we agreed to a $2.5 million credit to an account that had purchased a significant portion of our excess toning inventory in 2011, which impacted overall gross margins by approximately 50 basis points.

Additional first quarter highlights include: a 44% increase on our domestic wholesale business; a 20.7% increase on our international business, including a nearly 30% growth in our international distributor business and an 18% increase in our international subsidiary and joint venture sales; a 16.9% increase in domestic and international retail sales; a 24% increase in e-commerce sales; a 47.1% increase in pairs shipped within our domestic wholesale business, with double-digit growth in our Men's, Women's, Kids and Work divisions.

Further financial highlights for the first quarter include: inventories down over $85 million from the fourth quarter due to strong sell-throughs; a strong balance sheet with $264.7 million in cash or approximately $5.24 per share; and a return to profitability, with earnings from operations of $15.3 million.

We are pleased with the continued strong gains we achieved in the first quarter, which follows a much improved fourth quarter, and with the significant improvements in our earnings from operations, net income and EPS, all of which reflected a loss in the first quarter of 2012.

With fresh product, effective marketing and more efficient operations, we believe the positive momentum will continue in 2013, as we continue to grow our business around the world.

In our domestic wholesale business, first quarter 2013 sales increased 44% or $58.8 million versus the same period in the prior year. This was due to double-digit improvements in our Men's, Women's and Kids lines and a 47.1% increase in pairs shipped.

With an increasingly diverse product mix, we saw improvements with nearly every product line experiencing double-digit growth in the quarter, including our Men's and Women's SKECHERS GO, SKECHERS Sport and SKECHERS USA lines, and our Women's BOBS and Active lines, among others.

Thanks to the continued sales growth of BOBS, as of last month, we have donated more than 4 million pairs of shoes as part of this program.

Our Performance division continued to perform exceptionally well in the first quarter in particularly, our SKECHERS GOwalk line for women, On the GO for men and SKECHERS GOrun 2 for men and women.

We believe sales of our Performance footwear were positively impacted by our humorous SKECHERS GOrun 2 Super Bowl commercial, which pitted men against cheetah. We received a lot of media attention, placing in the top 10 in several Super Bowl advertising polls. We continue to air this commercial on a new spot for SKECHERS GOwalk to support our spring business.

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