It's pretty tough being an investor in Skechers (NYSE:SKX) this year. While the broader market, as represented by the S&P 500, is up about 4%, the leisure shoe purveyor has lost more than a third of its value -- and has dropped an even stepper 40% from its recent highs back in April. The company has been pursuing international expansion to offset slowing domestic sales, but weak operating margins and disappointing guidance have investors running for the exits.

Skechers had a pretty rough first quarter, and investors were hoping for a mid-year rebound, but the declines continued. With two sub-par quarters in the rearview mirror, investors will be turning their attention to the results for the third quarter, which Skechers is scheduled to release after market close on October 18. Let's take a look at the results of the most recent quarter and see what this financial report could hold.

A woman walking out of a Skechers store wearing Skechers and carrying multiple full shopping bags with the company logo.

Image source: Skechers.

From bad to worse

For the second quarter, Skechers reported record sales of $1.13 billion, up 11% year over year, which met analysts' consensus estimates but marked the closest growth in more than a year. The company also touted record gross margins of 49.4%, but unfortunately, that didn't make it to the bottom line. Net income fell 24% to $45.3 million, resulting in earnings per share of $0.29, far below the $0.41 expected by analysts. Comparable-store sales at company-owned stores increased 4.5%, up 2.2% in the U.S. and 11.3% annually -- an impressive feat for any company.

Skechers has been pushing into overseas markets, and international wholesale revenue has grown by 25%. This helped offset domestic wholesale declines of 7%, as well as a 6.1% falloff in its international distributor business. Unfortunately, its foreign markets are much more cost-intensive, and that carried down to the bottom line.

Sales, general, and administrative expenses (SG&A) grew 19% year over year, led by increases in international advertising. You rarely want to see expenses grow faster than revenue, but that has clearly been the case as Skechers has been pursuing its international buildout. Investors should be watching for a moderation in expenses or improving operating margins, as these would be signs that the company may be able to right the ship.

The future looks uncertain

For the third quarter, Skechers is forecasting revenue in a range of $1.2 billion to $1.225 billion, which would represent year-over-year growth of about 10% at the midpoint of its guidance -- which would mark another quarter of slowing growth. Earnings projections were similarly disappointing, with the company estimating earnings per share of between $0.50 and $0.55, which would represent a decline in profitability of roughly 11% at the midpoint of its guidance.

The combination of slowing domestic sales and plummeting operating margins have given investors pause, and Skechers will need to address both of these issues if it stands any chance of reversing its sliding stock price. Based on the two previous quarters, I don't have much hope for improvement.

Danny Vena owns shares of Skechers. The Motley Fool owns shares of and recommends Skechers. The Motley Fool has a disclosure policy.