Skechers’ (SKX) third-quarter 2010 results missed the Zacks expectations for top and bottom lines, reflecting sluggish sales trends and order cancellations. Consequently, total inventories increased 70.3% to $326.7 million over the prior-year quarter.
Management hinted that extended delivery times also led to the inventory pile-up. Following the earnings release, the Zacks Consensus Estimates have been falling, with analysts remaining bearish on the stock, prompting us to revise our recommendation. We now expect the stock to Underperform.
However, Skechers indicated that it would try to lower its inventory level over the next two quarters, while generating reasonable margins. We believe that international business should act as a catalyst to normalize the inventory level.