Which companies are poised to win in the second half, which ones worry market watchers and where are the trends?
Footwear News hosted three of Wall Street’s industry experts and got their candid answers to three key questions about the major footwear players.
Read on for Canaccord Genuity Inc. analyst Camilo Lyon, Sterne Agee CRT analyst Sam Poser and B. Riley & Co. LLC analyst Jeff Van Sinderen’s takes on the hot topics.
The debate over trends in footwear has persisted for several quarters. Have you observed any changes?
CL: There continue to be strong trends on the athletic side, and I don’t see any reason why that shouldn’t continue. I’m pretty optimistic. We’re seeing recovery on the fashion-footwear side — Steve Madden has been at the forefront of that. The trends that Madden is bringing to market are not only taking hold, they’re having a longer shelf life and are spanning seasons. Those are all favorable coming off a tepid, stale year for trends in footwear.
SP: Steve Madden probably picked up share during the fashion-footwear trend lull because other non-public companies couldn’t perform. [Madden] was even able to acquire companies, like Dolce Vita, because of that — and that just shows how strong they are and how focused they are in a bad environment.
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JVS: Although there are pockets of brilliant product, without much in the way of broad fashion and style drivers outside of athleisure for some time, adequate innovation in fashion product has been an issue in certain niches. One of the things we are watching is the rise of the bohemian, hippy-chic, retro trend. After a period where there was a dearth of fashion [excitement] for the female consumer, this trend has been a prevalent, positive influence in the first half.
What are your top stock picks for the second half?
CL: Coming into the year, my top growth pick was Under Armour, my top recovery pick was Steve Madden and my top small-cap pick was Sequential Brands. Madden is tracking exactly as I had anticipated, and we still have yet to see the benefits of everything they’re doing with Dolce Vita — I think there’s 25 percent upside left from current levels. I also recently upgraded Finish Line to a ‘buy’ — there’s a pretty dramatic earnings-power story there. I also see potential for DSW.
SP: Skechers, Madden, Foot Locker, Under Armour and Nike. They have one thing in common — they’re never satisfied.
JVS: Casual-athletic product continues to resonate well overall, and Skechers is in one of the sweet spots of that market, so it should continue to do well in the second half. I also like Steve Madden, which is emerging from the damage of the West Coast ports slowdown, which affected its short-lead-time business. In some respects, Madden has fairly easy comparisons in the second half since there are now some fashion trends in place to drive the business. I also like DSW’s position as a discounter, with an opportunistic approach to making product buys.
What firms are you most concerned about?
CL: Michael Kors. It suffers from the things that made the brand successful early on. I don’t think the company is aware of just how much brand dilution they’re suffering from the over-distribution they’re engaging in — and that’s only exacerbated by more door expansions in both retail and wholesale. Until the company makes some difficult decisions to balance out the supply-demand equation, they’ll have tough times ahead of them.
SP: I’m most cautious about Wolverine, Finish Line and Genesco. Finish Line has a big comp top-line problem, especially in its brick-and-mortar stores. Macy’s Finish Line shop-in-shops are probably the best thing Finish Line has going on this year — I just question how the company will get that to work out beyond this year now that they’re comp-ing it. Management needs to come up with an idea of what Finish Line means as a brand in order to keep customers close. I also think Running Specialty is a big problem. At Wolverine, I’m most concerned about Sperry and Merrell.
JVS: What worries me most are the smaller players that don’t have the critical mass or capital to build the systems and infrastructure to evolve into omnichannel players. It seems to me that some of the smaller players will not make it. There also are a few companies — I’m not going to mention specific names — that have concepts that are not resonating well, so there could be a day of reckoning for them.
(Portions of this story originally appeared in the July 27 issue of Footwear News).
