Maturing Skechers gets the boot from wary Wall Street. (Corporate Focus).

A year ago, Skechers USA Inc. faced down a big problem when a surge in inventories left company warehouses full in the retail aftermath of Sept. 11.

Skechers brass was given high marks in quickly switching to efficient-manager mode from the rapid-growth mode it had been in for the previous five years.

Costs were cut and much of the inventory was blown out through close-out sales. By late spring, Skechers seemed to be riding high again. The stock was back up above $20, and the company was on track to break through $1 billion in revenue this year.

Now Skechers has taken another step backward, and its management team, led by Chief Executive Robert Greenberg, will be tested again. This time, the question is whether Skechers can make the transition from a hot, growing company to a more mature, cyclical one whose boom times may be over.

There's no consensus on the answer.

There continue to be cheerleaders on Wall Street, who admire Greenberg's marketing prowess (he, of course, founded and grew L.A. Gear Inc. before it wound up in bankruptcy court after he left in the 1990s). But there are also skeptics.

On Sept. 6, Wachovia Corp. analyst Joseph Teklits downgraded Skechers to "hold" from "buy" after visiting the Magic apparel industry trade show in Las Vegas.

"With clouded visibility for the footwear market and the Skechers brand, and no near-term catalyst for (Skechers) shares, we feel a hold rating is more appropriate," Teklits said in the downgrade note.

Teklits said he wasn't hearing the positive mentions about Skechers from retailers at the show that he had in past years. This summer and fall, he said, "that type of buzz doesn't seem to exist. We hear about the Steve Madden men's business, or the Diesel brand, or Kenneth Cole Reaction and Coach, or smaller brands, but not really Skechers."

Days later, on Sept. 10, Skechers reduced its third and fourth quarter revenue and earnings estimates, and the stock dove from the mid-teens to where it was last week, between $10 and $11.

In a statement announcing the lower outlook, Skechers President Michael Greenberg (son of Robert) attributed the revision to "the generally weak domestic retail sales environment" and a weak back-to-school season. Its spring 2003 product lines "were received well" at a shoe industry trade show in August, he said. Inventories remain clean, and sales within Skechers' international and company-owned retail divisions are running ahead of expectations.

Skechers officials declined comment for this article.

The company has a large and varied line of shoe lines styles for men and women, but it has always been strongest with athletic shoes for young women from about 12 years old through college age. In 2001, it signed a major marketing contract with pop star Britney Spears.

But in these younger markets, tastes change quickly, said Sandy Benson, merchandise manager for Bregman & Associates, a Los Angeles fashion consultant to department store buyers.

"You want 'chat,'" Bregman said, referring to informal industry talk about popular styles. Right now there's chat about the retro look--the Puma athletic shoe is an example--or "logo-driven" styles (Coach). "There isn't a lot of chat about Skechers," she said.

Competitors like Puma have come in with competitively priced, stylish products, mimicking a strategy that worked well for Skechers in previous years.

Skechers also has been a periodic target of short sellers, who seek to profit from a stock's decline by selling borrowed shares and repaying the loan with shares bought at a later date.

Skechers' short interest has been rising all year, and peaked in June--after Skechers increased its earnings projections in April, and Robert Greenberg sold 1 million company shares, at $21 each, in May. In July, the stock began to tank, despite another upward revision in earnings guidance. Short interest has fallen recently as the stock fell and short sellers locked in their profits.

"Here's a typical stock that's subject to a fashion fad," said Harry Strunk, managing member of Aspen Grove Capital Management in West Palm Beach, Fla.

Salomon Smith Barney analyst Carol Pope Murray, whose firm hasn't done any recent underwriting for Skechers and doesn't expect to in the near future, maintains an "underperform" rating on Skechers stock.

Skechers' low stock price, in relation to its earnings, is "appropriate given the frequency with which the company revises guidance, providing poor (earnings) visibility in an already tough industry to forecast."

Financial Editor Anthony Palazzo can be reached at 323-549-5225, ext. 224, or at [e-mail].

[GRAPH OMITTED]

Skechers USA Inc.

Stock Prices


Sept. 18, 2001  $16.95
Sept. 18, 2002  $10.46

Note: Table made from line graph
YEAR (Dec. 31)                 2001    2000

Revenue (millions)           $960.4  $675.0
Total Expenses (millions)     871.9   593.8
Operating Income (millions)    88.5    81.3
Net Income (millions)          47.3    43.8
Earnings Per Share            $1.24   $1.20

SUMMARY

Business: Shoe manufacturing

Headquarters: Manhattan Beach

CEO: Robert Greenberg

Market Cap: $392.6 million

Dividend Yield: N/A

* Total Liabilities: $256.3 million

P/E Ratio: 7.3

* Long- Term Debt: $90 million