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Weak Retail Climate Hurts Sketchers

The shoe company's first quarter earnings fell 75%.

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On April 29, 2009,

Sketchers USA


reported that its Q1 FY09 earnings fell 75.0% due to a decline in gross margins as a result of a weak retail climate amid global slowdown. Net income for the latest first quarter declined to $8.22 million or $0.18 per share from $32.84 million or $0.70 per share in Q1 FY08. The most recent consensus estimate was a loss of $0.09 per share.

Sketchers' net sales decreased 10.8% to $343.47 million from $384.92 million in the comparable quarter of last year. International wholesale sales constituted 29.0% of the total sales, compared to 26.0% in Q1 FY08. Gross profit margin deteriorated 821 basis points to 36.52% from 44.73%, primarily due to the aggressive planned reduction of inventory levels. Cost of sales increased 2.5% to $218.04 million from $212.75 million. Royalty income declined 67.6% to $272,000 from $840,000. Selling expenses declined 15.8% to $21.51 million from $25.53 million, while general and administrative expenses slipped 1.2% to $98.04 million from $99.22 million. As a result, operating margin improved 240 basis points to 34.81% from 32.41% in the prior year's quarter.

During the quarter under review, the company expanded its operations in South America by assuming the distribution of its brand in Chile through a newly established subsidiary, SKETCHERS Chile, while also opening four new stores: one each in Saudi Arabia and Russia, and two in the Philippines.

Looking ahead, Sketchers expects to return to profitability in the second half of FY09 and achieve annual revenue between $1.20 billion and $1.30 billion in FY09.