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Investors Look to Get Leg Up on Shoemaker Shares

Skechers USA Inc. may have put the problems of its Shape-up fitness shoe behind it. Investors gave company’s stock a good bump last week as they started looking ahead to prospects for a wider selection of new products, such as a line of lightweight running shoes.

The Manhattan Beach shoe company last week was one of the biggest gainers on the LABJ Stock Index. Shares increased 7 percent for the week ended April 25. (See page 38.) After a smaller-than-expected loss was reported after the markets closed, shares jumped 14 percent to close at $16.96 the following day.

Skechers reported a first quarter net loss of $3.7 million, 69 percent less than in the same period a year earlier. The company reported that revenue fell 26 percent to $351 million. But investors took that as a sign that the company had sold off its Shape-up inventory. And significantly, company stores returned to profitability during the quarter.

Shape-ups have a distinct rounded sole that was advertised as having fitness benefits. It was a fad that faded, but Skechers was stuck with loads of the shoes and some analysts criticized the company for what they believed was a failure to unload the line quickly.

The company reported that gross margins in the quarter rose to 44 percent, up from 40 percent a year earlier. That meant that more of the sales were of full-price shoes, including the GoRun and GoWalk performance shoes that the company is rolling out slowly at its retail stores and selected retailers such as Finish Line and DSW. Skechers also has introduced sports and lifestyle lines for men, women and children, and updated others.

GoRun won positive publicity in January when one of the company’s sponsored athletes, Olympic medalist and New York City Marathon winner Meb Keflezighi, wore the shoes when he placed first in trials to compete in the Summer Olympics in London.

“They have rebuilt and redeveloped their product lines and now some of that new product is gaining traction, though it’s still very early for them,” said analyst Jeff Van Sinderen at B. Riley & Co. in West Los Angeles, who upgraded the stock from “hold” to “buy.”

Other analysts increased their profit forecasts for the company, but said they would retain their “hold” recommendations until the company improves more.

“The company still needs to prove it can sustain sequential improvements in what has been a slow road to profitability,” said Christopher Svezia of Susquehanna Financial Group in New York in a note to clients. “Overall, we believe Skechers is moving in the right direction.”

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