SKX

Let me clarify a few points:

  1. On the domestic shoe market – It’s been weak for everyone, not just for Skechers. It’s not Skechers fault and there’s not much it can do about it until it turns around. Will it be weak forever? You can answer that. I doubt it!
  2. On the Sports Authority bankruptcy – It resulted in them flooding the market selling off all their stock at fire sale prices. Naturally that cut into Skechers’ sales. In the conference call, Skechers intimated that they believed that that was now finished.
  3. On the change from distributor to joint venture in Korea – Skechers recognized revenue when it sells to a distributor. It recognizes revenue when a joint venture sells the shoes, much like a company-owned retail store. This means that for one to two quarters they’ll be recognizing hardly ANY income from Korea, which is actually a thriving market for Skechers, because

A. The distributor is no longer a customer. When it sells off its inventory it doesn’t count as it was already recognized as revenue when the distributor bought it from Skechers.
B. The joint venture will be getting the shoes the distributor used to get but doesn’t recognize the revenue. Why? Because as a joint venture it doesn’t recognize revenue until it sells the shoes retail!

The reduction of Korean sales from thriving to almost zero is clearly a one-time occurrence, and clearly is enough to drop revenue estimates for the quarter.

Saul

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