Skechers: Shape Ups or Ships Out?

Skechers reported record revenues and earnings last quarter.

Then the bottom fell out of the stock.

The reason?

An attack on Skecher's best seller—the Shape-Ups toning shoes.

Skechers Resistance Runners hit shelves in July.
Source: Skechers
Skechers Resistance Runners hit shelves in July.

A report by the American Council on Exercise said that toning shoes don't live up to the hypeof burning more calories by forcing those wearing them to work harder.

The Council is a non-profit which also sells DVDs and handbooks for physical trainers.

A few weeks after the report came out, a woman filed a lawsuit against Skechers alleging false advertising about Shape-Ups, seeking class action status.

Investors seemed to put on their running shoes to flee, so Skechers started fighting back. The company claims the negative report was "flimsy" and not peer reviewed. It provided other studies, two from peer reviewed publications, claiming toning shoes do help people lose more weight. Skechers provided funding for some, but not all, of those studies.

A lot is at stake.

While Skechers won't break out specific sales numbers on Shape-Ups, one look inside company headquarters tells you how important the line is. Nikedoesn't make toning shoes, and Skechers is betting its future on expanding the line into a variety of specific shoes for specific activities for women, men, and even children. Men, in particular, are getting a boost as spokesman Joe Montana will be joined by Wayne Gretzky, Evander Holyfield, Karl Malone, and Kareem Abdul-Jabbar.

"Sales of toning shoes have decelerated sequentially in the summer months due to the intense heat (conversely sandals have done very well)," Camilo Lyon at Wedbush tells me. "Now that we're in the back to school season, other parts of athletic footwear are doing better — kids going back to school buying their Nike running shoes while mothers put off purchases for themselves...My guess is that the average consumer has not been influenced by the negative headlines." He believes "demand will continue to be there."

I spoke with Leonard Armato, President of Skechers Fitness Group, on how the company is trying to turn "adversity into opportunity." You can watch the interview here.

The company allowed our cameras in for the first time into a room at headquarters where it showed us how the Shape-Ups have evolved, including new shoes which have yet to hit the market.

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