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Skechers Expects to Beat Estimates

Retail: The shoemaker credits strong sales and cost cuts for its first-quarter profit.


Footwear maker Skechers USA Inc., which has been swiping market share from industry giants such as Nike and Reebok, said Wednesday that it should beat Wall Street profit estimates for the first quarter by at least 25% because of strong sales and cost cuts.

The announcement by the Manhattan Beach-based company surprised analysts and boosted Skechers' stock price by 14%. The news comes as Skechers is recovering from earnings disappointments in the second half of last year.

"They had a much better first quarter than we thought and it's really driven by the performance of the brand at its key retailers, particularly in its moderate-priced channel," said Steven Richter, an analyst with RBC Capital Markets. "The brand is performing, particularly the athletic look is working at retail right now."

The company said sales for the first quarter should be more than $235 million. A consensus from estimates at First Call had expected earnings of 34 cents a share.

Skechers said sales were surging across all product lines, which include casual and hiking shoes for men and trendy platform styles for women. The company's athletic shoes have grabbed market share from the larger athletic shoe companies by selling at lower prices, analysts said. Spring shoe styles also are selling well, the firm said.

Shares of Skechers closed on Wednesday at $21.64, up $2.73, after brisk trading on the New York Stock Exchange. More than 2.7million shares changed hands, almost eight times the daily average over the last three months. The stock price is up 48% in 2002 but is still down nearly 9% compared with a year ago.

Skechers, like many shoemakers, slogged through a tough earnings year in 2001 but still managed to rake in sales of more than $960 million, up from $675 million the previous year. The company has cut excess inventory, improved inventory management, laid off 5% of its workers and closed its catalog operation.

"They're about as diversified across product lines as any company in the world," said Joseph Teklits, an analyst with Wachovia Securities. "The key to the business is staying on top of trends with styling but at lower price points than the competition."

Skechers also is staying in the spotlight by enlisting movie and music stars--including Matt Dillon and Robert Downey Jr.--in its advertising and by introducing new products, such as roller skates with sneaker tops. They hit stores last fall, selling for about $65 for children and about $85 for adults.

About 9% of Skechers' 2001 revenue was devoted to advertising, said the company, which sells its products in department and specialty stores and also has 83 of its own stores in more than 20 states.

Skechers President Michael Greenberg declined to estimate how much the shoe skates business might boost sales in the future, but said it will be "sizable" because the skates already are being sold in a number of large department stores.

In most segments of the footwear industry, shoe sales continue to struggle, after a tough 2001, said Susan Lapetina, strategic-planning director for American Apparel & Footwear Assn. in Arlington, Va.

"Compared to last year, we're at about the same pace," Lapetina said. "Business is still very tight and very difficult."

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