Foreign exchange losses

Skechers said its Q3 diluted EPS were negatively impacted by foreign currency translation and exchange losses of $8.1 million, 4 cents per diluted share.

For those on the board who may not be sure of what this means, here’s how I understand it.

Say in the year ago quarter SKX had sales in England for 10 million British pounds, which gave them $18 million US dollars of net income (I’m just pulling a number out of the air here for illustration).

Say this year they did even better, and had sales in England of 11 million pounds, but because the pound has fallen against the dollar (as most currencies have this year) from $1.80 to $1.50 , that 11 million pounds is now worth only $16.5 million instead of the $19.8 million it would have been worth last year.

The company then says that you are getting a distorted picture of how they did, and to compare how THEY did, with how THEY did last year, you have to take that $3.3 million difference into account, so they say they were negatively impacted by foreign currency translation for $3.3 million.

I hope that helps!



In reading the transcript, it sounds like there was a difference in the tax rate which also contributed to missing the anticipated earnings. Here is the question and answer addressing this:

Jay Sole, Morgan Stanley - Analyst [12]

Okay, got it. And then can you just talk about the tax in 3Q? It sounded like the difference between the guidance and the actual results was that, you know, you anticipated profits in certain regions. The result was different. But it seems like the US was a little slower from a sales standpoint than you expected relative to international, but the tax was higher which implies the prof was greater in the US. Is that just because it’s more cost cutting in the US and that’s why it is like that?

David Weinberg, SKECHERS USA, Inc. - COO, CFO [13]

That’s certainly is part of it and it was a surprise. You have to remember while gross margins and therefore some operating revenue certainly went up in the United States, even though the average price was down, our gross margins were slightly higher as a percentage. But the whole world is not equivalent as far as the tax structure is concerned. The tax structure has multiple, multiple pieces going from Europe to South America and to China and to southeast Asia and the mix can usually shift things around some. And I think it was the US making slightly more and international as a percentage because of the increased advertising and some of the overhead that we had to put in for growth, making growing a little slower at the operational line than we had anticipated.

So what happens is the swing is not quite as big as you see when you see the 24% category. What basically happened was we had calculated an 18% or forecast an 18% tax rate for the year when we finished Q2. The tax rate because of all of these shifts have now on an annual basis gone up to 20. Now 200 bases points is not outrageously significant however because of the earnings in the first two quarters to get the three quarters back to that 20% average that we’re going to plan for the year took this quarter up to 24%. So when you look at this quarter’s operation against last, we had exactly the opposite happen last year where we had a decrease in the quarterly tax rate because we had a decrease in our forecast for the entire year.

So that differential is obviously the biggest piece of the change in earnings and if you throw the $0.04 from currency and the differential in the anticipated tax revenue have more than the offset to the bottom line number


Here’s a quote from the conference call illustrating what they are talking about:

Additionally, the United Kingdom shipped more than 1.2 million pairs, a 20% increase, but grew only 11% due to the weaker pound.


You’d also need to take into account inflation in England. If the cost of living had increased by 10%, then there’s no sales increase in constant pounds.