Casual Shoes Off and Running Again

Too many shoes, too many stores and no Michael Jordan-powered basketball championships left the casual shoe industry playing like the Los Angeles Clippers last year--down and out.

But in recent months, the industry, which relies on athletic shoe sales, is posting a rebound that basketball bad boy Dennis Rodman would be proud of--strong, but quirky.

Shares of Skechers USA Inc., the Manhattan Beach maker of hip shoes for young people, have risen nearly 60% in the last six weeks, making it one of the hottest Southern California stocks during that period. Year to date, the stock is up 188.5%.

On Wednesday, Skechers said profit rose to $6.7 million in the first quarter, up 219% from $2.1 million in the same period a year earlier. Sales soared 39.3% to $133.3 million.

The promising financial results, bolstered by what Deutsche Banc Alex. Brown analyst Marcia Aaron estimates was a 40% year-over-year growth in its order backlog in the first quarter, helped bring Skechers shares to a close of $11 in New York Stock Exchange trading Friday. Though that was down 6 cents from the previous day, it marked the first week since its first five days of trading that the stock ended at or above its original offering price of $11.

The industry went into a slump after superstar Michael Jordan retired and labor strife shortened the National Basketball Assn. season last year. A shift in consumer tastes toward hiking boots and dressier shoes, especially by teenagers and young men, compounded the industry’s woes. Inventories grew and discounting grew deeper, said Steven Marotta, an analyst at Wasserstein Perella Securities in New York.

Just for Feet Inc., the nation’s second-largest retailer of athletic shoes, filed for bankruptcy last November, and has since sold off most of its assets.

In January, Venator Group Inc., the nation’s largest athletic shoe seller, said it would close 358 stores. It owns the Foot Locker and Champs chains. The store closings and inventory sell-off have helped turn much of the industry around, said Marotta.

By March “consumers came back to the athletic shoe business,” said Dennis Rosenberg, an analyst with Credit Suisse First Boston in New York.

On Thursday, Venator said its first-quarter sales rose 13.5% to $1.08 billion. Venator also said its profit for the quarter should exceed Wall Street’s expectations by at least 25%.

Other casual shoe companies are benefiting from the positive trends.

Shares of Vans Inc., the Santa Fe Springs maker of popular skateboard shoes, have jumped 21.4% this year, helped by smart marketing that includes staging of the Triple Crown Series of skateboarding, snowboarding and surfing, along with other edgy competitions on TV sports channel ESPN.

Vans’ revenue jumped 48.9% to $67.8 million in its third quarter ended Feb. 26 from $45.5 million in the same period the year before. Net income almost tripled to $1.7 million from $635,000.

Shoemakers Reebok, Stride Rite and Timberland also have seen their stocks surge as sales have come back. Industry leader Nike has rebounded since late February, although its shares are still down 13.8% for the year.

Other have not joined the party. Converse shares are down nearly 48% this year, while K-Swiss Inc. of Westlake Village is off 26.7%.

Skechers was founded in 1992 by Robert Greenberg, who built L.A. Gear into a footwear giant that in 1990 was third only to Nike and Reebok. But subsequent losses of more than $140 million caused by a recession and shifting consumer tastes pushed Greenberg out of L.A. Gear.

By 1993, his new Skechers venture was importing the clunky Doc Martens shoes into the U.S.

Then Greenberg decided to go after the same teenage and young adult market with his own brand, taking the company public in a $115-million offering last June. The Skechers name comes from early 1990s teen slang for someone who can’t sit still.

But Skechers didn’t meet Wall Street’s financial expectations in the quarters following its offering, Aaron said. The stock slumped to a low of $3.31 in January.

“There were just too many companies and too many retailers in the industry,” Aaron said.

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Hoofing It Back to Square One

Skechers USA shares, which sank after last summer’s initial public offering, have climbed back to the IPO price. Weekly closes on the NYSE:

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* Founded: 1992

* Headquarters: Manhattan Beach

* Employees: 549

* Chairman/CEO: Robert Greenberg

* Market cap: $384 million

* 1999 revenue: $425 million

* 1999 earnings: $19.8 million

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Sources: Bloomberg News, company reports