Two years ago, Manhattan Beach shoemaker Skechers USA Inc. hit record sales and profits thanks to Shape-Ups, a line of rocker-sole shoes that it claimed helped customers tone legs and lose weight. The company went all in on marketing and factory orders.

But the fad was short-lived. Amid oversaturation and questions of product effectiveness, demand plummeted – along with the company’s stock. Stuck with millions of unsold pairs and with few other products to sell, the company posted a record loss last year.

Now, Skechers is mounting a quiet comeback.

It has refocused on a broad range of less flashy products and has cleared out most of its toning shoe inventory. Results are starting to show, with the company swinging back to a profit in the most recent quarter and shares are up 67 percent since bottoming out in January. They closed up 22 percent at $18.68 for the week ending Nov. 21, making it the biggest gainer on the LABJ Stock Index. (See page 52.)

“We’ve brought a lot of product into the marketplace and regained shelf space,” said Chief Operating Officer David Weinberg. “We came off a downturn and a market ending for us, and we’re now coming back very strongly.”

But, analysts said, the company’s comeback will be a marathon, not a sprint, and Skechers isn’t at the finish line yet.

The brand continues to feel a reputational hit with consumers, they said. What’s more, Skechers is facing an increasing number of personal injury lawsuits related to its toning shoes. That follows a $45 million settlement announced in May over false advertising claims related to the shoes.

The stock remains far below its dizzying heights, having lost more than $1.3 billion in market capitalization since peaking at nearly $45 a share in June 2010.

“It’s much easier to fall out of bed than climb back in,” said Sam Poser, an analyst with Sterne Agee & Leach Inc. in New York. “It’s been difficult.”

The initial popularity of toning shoes two years ago came suddenly and unexpectedly for Skechers. The company had several toning shoe lines, including Tone-Ups and Resistance Runners, but its biggest hit was the Shape-Up, which had a rounded sole that would purportedly give wearers a workout just by walking normally.

Sales surpassed $2 billion in 2010, up 40 percent from the prior year. The company also posted $136 million in net income in 2010, its highest since going public in 1999.

But Poser said the company overinvested in its new hit, flooding the market and placing large factory orders as much as six months in advance. It also aggressively marketed the product with ads featuring endorsers such as Joe Montana and Kim Kardashian.

Demand slowed suddenly by the end of 2010. Retailers were caught with inventory they couldn’t move and Skechers was forced to help cover the costs of discounts. The debacle strained relations with retailers, some of which reduced Skechers shelf space and became reluctant to do further business with the company, analysts said.

With a lack of new nontoning products, the company lost money, reporting a record $67 million loss last year.

The slowdown was prompted in part by increasing skepticism of the benefits of toning shoes. A study funded by the American Council on Exercise found that Shape-Ups and two competing toning shoes products did not have an effect on fitness. A Federal Trade Commission investigation was launched into claims regarding Shape-Ups, Tone-Ups and other Skechers toning shoe lines. Lawsuits were eventually filed by the attorneys general of 44 states. In May, the company announced a $45 million settlement of the cases plus up to $5 million in attorneys’ fees.

Weinberg acknowledged that the company could have handled Shape-Ups differently. But he said the hit taken by the company because of toning shoes had been “absolutely overblown.” He even said the company could introduce new toning shoes in the future.

“It was still a good product, but it happened to hit saturation points as other products do,” he said. “We will be a larger company at the end than we were before this phenomenon even began.”

The company spent the last two years clearing out inventory and developing new products, he said. With some new lines coming to market now, the company’s financial numbers have improved again. Particularly successful have been women’s lines such as Go Walk and Go Run, which fueled year-over-year double-digit growth in the women’s sport and women’s active divisions in the most recent quarter.

The company also saw double-digit growth in its children’s lines, according to Securities and Exchange Commission filings, and has introduced a charitable line of shoes similar to TOMS, dubbed BOBS.

The company has managed to clear out most of its toning shoe inventory, although Weinberg declined to get into the specifics of what channels it used to do so.

In the most recent quarter, it reported $11 million in net income on $429 million in revenue, up from $8 million in earnings on $412 million the previous year.

“They’ve focused back on to their core business and it’s starting to work,” said Christopher Svezia, an analyst at Susquehanna International Group LLC in New York. “People are coming back to it now that toning isn’t what it used to be.”

Lots of suits

Still, there are challenges. In its most recent quarterly filing, Skechers reported that 145 personal injury lawsuits have been filed related to Shape-Ups, more than double the total just three months prior. Most of the lawsuits have been consolidated in federal court in the Western District of Kentucky, although some cases have also been filed in Los Angeles Superior Court.

Such cases usually snowball as plaintiff attorneys advertise for clients, said Michael Alder, a consumer attorney who reviewed some of the cases for the Business Journal. He added that the California cases could be tougher to defend than the federal cases, because state law makes it easier to prove consumer product liability here.

Though the company is currently emphasizing a broader range of products, Poser added that investors remain wary of the company’s history of overzealousness once a line takes off.

“We’re beginning to see business start to get better, but the big issue is how do they keep a lid on their inventory and on marketing spend, and temper growth rather than try to go to the moon?” he said.

Weinberg said the company wouldn’t back off completely if a product heats up, but would look out for saturation points. For now, he expects steady growth.

“Our goal for the next 12 months is to continue to grow,” he said. “We’re sitting in pretty good shape, having cleaned through (inventory) and with a much broader and well-received offering.”