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Skechers Transforms in Japan

Zacks Equity Research

Following its sluggish fourth-quarter 2011 results, Skechers USA Inc (SKX) is trying hard to reposition itself for 2012. Yesterday, the company announced its intention to double its business in Japan over the next three to five years by transitioning its business model from a third-party distributor to a wholly owned subsidiary.

Japan has been one of the company’s biggest distribution markets. Thus, the company plans to roll-out new Skechers retail stores across the country, including its collection of performance and lifestyle footwear for men, women and children for boosting revenues. 

International business remains a significant growth driver for the company’s sales. International wholesale business’ revenue jumped 12% to $487.3 million during fiscal 2011 and International retail sales surged 22% during fiscal 2011.

Further, management remains committed to focus on new lines of products, including ‘Skechers GOrun,’ opening of additional Skechers stores and increasing distribution channels with the development of international distribution agreements to improve its sales and profitability.

Skechers reported a loss of 54 cents per share in the fourth quarter of 2011 compared with earnings of 7 cents in the prior-year period. On a reported basis, including one time items, Skechers delivered a loss of $1.18. The Zacks Consensus Estimate stood at a loss of 23 cents for the quarter.

Moreover, Skechers, which competes with Deckers Outdoor Corporation (DECK) and Nike Inc. (NKE), stated that total net sales for the quarter dropped 37.7% to $283.2 million from the prior-year quarter, reflecting lower sales of high-priced toning shoes and sluggish performances across other footwear lines, principally in domestic wholesale business. The reported revenue was well short of the Zacks Consensus Estimate of $322 million.

The company appointed Hirokazu Iwasaki as the new representative director and country manager of Skechers Japan.

Currently, we maintain a long-term Neutral recommendation on the stock. However, Skechers retains a Zacks #5 Rank that translates into a short-term Strong Sell rating

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