3 Footwear Stocks to Buy, 1 to Avoid
The footwear market has been evolving rapidly with changing aesthetics and fashion trends. Furthermore, as people resume outdoor sports and fitness ac...
The footwear market has been evolving rapidly with changing aesthetics and fashion trends. Furthermore, as people resume outdoor sports and fitness activities due to solid progress on the COVID-19 vaccination front, the footwear market is expected to witness significant sales growth. So, we think established industry players Under Armour (UAA), Skechers U.S.A. (SKX), and Steven Madden (SHOO) could be valuable additions to oneâs portfolio now. However, we think NKE should be avoided, due to its weak fundamentals and stretched valuation. Read on.
The increasing popularity of athleisure footwear amid an increasing trend in activities such as home workouts, yoga, running, and Pilates, has been shaping the footwear industry over the past year. In addition, because a robust rollout of vaccines has led to increased outdoor regular and fitness activities, despite the resurgence of COVID-19 cases, the demand for footwear is expected to remain strong.
Furthermore, continually evolving sports and fashion trends and increasing demand for unique and superior quality footwear should drive the footwear marketâs growth. Robust customer spending and continued online shopping trends could help the industry see decent growth. The global footwear market is expected to grow at a 2.6% CAGR to $213.3 billion by 2026.
Under Armour, Inc. (UAA), Skechers U.S.A., Inc. (SKX), and Steven Madden, Ltd. (SHOO) are three fundamentally sound stocks in the footwear industry that we think have the potential to capitalize on the industry tailwinds. So, it could be wise to bet on them now. Conversely, we believe investors should avoid NIKE, Inc. (NKE) because its current valuation is not justified by the companyâs bleak financials.
Stocks to Buy:
Under Armour, Inc. (UAA)
UAA in Baltimore, Md., distributes branded performance apparel, footwear, and other accessories such as gloves, bags, sports masks, headwear, etc., across the United States, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. The company sells its products under MapMyFitness, HEATGEAR, COLDGEAR, RUSH or RECOVER, UA HOVER, UA Logo, and others are the brands. In addition,Â it offers its products through wholesale channels, independent and specialty retailers, institutional athletic departments, leagues and teams, independent distributors; and directly to consumers through a network of 439 brand and factory house stores.
In June, UAA increased its minimum pay rate for hourly teammates to $15 per hour in the United States and Canada. The increase in payment will enhance the teammate experience and career journeys through important initiatives and new incentive plans. Also, since the companyâs Retail Distribution House teammates play an essential role in serving its customers, these efficient UAA teammates areÂ expected to deliver an improved buying experience.
In April, the company unveiled a long-range plan for a new global campus in Baltimore. UAA believes that in the post-COVID environment, the new location will integrate its global corporate and Americas regional functions into one location and enhance its operational efficiencies and innovation capabilities.
UAAâs revenue increased 91% year-over-year to $1.4 billion in the second quarter, ended June 30, 2021. In addition, the companyâs gross profit increased 91.5% from the year-ago value to $668.82 million.
A $5.53 billion consensus revenue estimate for its fiscal year 2021 represents a 23.5% improvement year-over-year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. UAAâs EPS is expected to increase 315.4% for the current year. The stock has gained 15.5% over the past one month and 6.7% over the past three months.
UAAâs POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UAA is also rated an A in Growth and Momentum, and a B in Quality. In addition , within the A-rated Athletics & Recreation industry, it is ranked #11 of 35 stocks.
To see additional POWR Ratings for Sentiment, Stability, and Value for UAA, click here.
Skechers U.S.A., Inc. (SKX)
SKX is a designer, distributor, and marketer of footwear for men, women, and children worldwide. It operates through Domestic Wholesale; International Wholesale; and Direct-to-Consumer segments. Skechers USA, Skechers Sports, Skechers Active, Modern Comfort, Skechers Street, Mark Nason, and BOBS are the company's brands. SKX, which is headquartered in Manhattan Beach, Calif., operated around 3,891 company- Â and third-party-owned Skechers stores as of December 31, 2020.
In July, SKX and kansaÃ¯yamamoto collaborated to feature menâs and womenâs footwear in a limited-edition collection inspired by the late iconic Japanese designer Kansai Yamamoto. These new collections have been launched at select Skechers flagship stores and online at Skechers websites in Japan, North America, and Europe. This offering should help the company grab customersâ attention and diversify its product portfolio.
Also in July, the company teamed up with Ryanâs World on kids' footwear collection. Since Ryanâs YouTube channel has more thanÂ 30 million subscribers, the company expects more viewers to be introduced to the new collection via the channel.
In the second quarter, ended June 30, 2021, SKXâs sales increased 127.3% year-over-year to $1.66 billion. The companyâs gross profit increased 130.5% from its year-ago value to $0.85 billion. Its operating margin rose 2,050 basis points from the prior-year quarter to 12.1%. Also, SKXâs net earnings came in at $137.4 million for the quarter, compared to a $68.1 million net loss in the prior-year period.
Analysts expect SKXâs revenue to increase 35.2% for the current quarter ending September 2021. The company has an impressive earnings surprise history; it beat consensus EPS estimates in three of the trailing four quarters. SKXâs EPS is expected to increase 315.4% for the current year. SKX has gained 5.6% in price over the past three months and 36.9% over the past six months.
It is no surprise that SKX has an overall B rating, which denotes a Buy in our proprietary rating system. SKX also has an A grade for Momentum, and a B for Sentiment and Growth. In the Athletics & Recreation industry group, SKX is ranked #5.
In total, we rate SKX on eight different levels. Beyond what weâve stated above, we have also given SKX grades for Value, Stability, and Quality. Get all the SKX ratings here.Â
Steven Madden, Ltd. (SHOO)
Incorporated in 1990, SHOO is a marketer and seller of fashion-forward branded and private-label footwear in the United States and internationally. It is headquartered in Long Island City, N.Y. The companyâs Wholesale Footwear segment includes the Steve Madden Women's, Madden Girl, Steve Madden Men's, Madden, Steven, and others, while itsÂ Wholesale Accessories segment includes Steve Madden, Steven by Steve Madden, Madden Girl, Betsey Johnson, Big Buddha, and others. SHOO owns and operates 218 retail stores and seven e-commerce websites.
In April, SHOO completed the acquisition of the remaining shares (49.9%) of its European joint venture that distributes its footwear and accessories to countries across Europe. SHOO believes that this acquisition will help it grow its market share in the region and capitalize on its strong digital-first positioning.
During the second quarter, ended June 30, SHOOâs revenue increased 178.6% year-over-year to $397.9 million. The companyâs gross profit increased 204.3% from itsÂ year-ago value to $170.06 million. Its income from operations totaled $47.7 million for the quarter, versusÂ a $23.7 million loss from operations in the second quarter of 2020. Furthermore, its net income came in at $37.34 million, versusÂ a $17.14 million net loss in the prior-year period.
SHOO is expected to generate 47.2%Â revenue growth in 2021. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. Its EPS is likely to increase 229.7% for the current year.Â SHOOâs stock price has surged to 14% in price year-to-date and 8.8% over the past six months.
SHOOâs strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. SHOO has an A grade for Growth and Momentum, and a B for Quality. Among the 64 stocks in the A-rated Fashion & Luxury industry, it is ranked #39.
Click here to see the additional POWR Ratings for SHOO (Stability, Value, and Sentiment).
Stock to Avoid:
NIKE, Inc. (NKE)
Leading athletic footwear company NKE designs, develops, and sellsÂ footwear, apparel, equipment, accessories, and services. In addition, the company licenses agreements that permit unaffiliated parties to manufacture and sell clothing, digital devices, applications, and other equipment for sports activities under NIKE-owned trademarks. Nike is based in Beaverton, Ore.
For its fiscal fourth quarter, ended May 31, 2021, NKEâs total selling and administrative expenses increased 17% year-over-year to $3.74 billion. The companyâs operating overhead expenses rose 16% from their year-ago value to $2.75 billion. Its negative EBIT came in at $1.11 billion, versus $844 million in the prior-year period.
In terms of non-GAAP forward PEG, NKE is currently trading at 2.18x, which is 117.5% higher than the 1x industry average. Also, its5.32x forward EV/Sales is 250.6% higher than the 1.52x industry average.
NKEâs POWR Ratings are consistent with this bleak outlook. The stock has a D grade for Value. Of the 35 stocks in the Athletics & Recreation industry, NKE is ranked #25.
In addition to the POWR Ratings grades weâve just highlighted, oneÂ can see NKE ratings for Momentum, Stability, Growth, Sentiment, and Quality here.Â
NKE shares were trading at $167.12 per share on Friday morning, up $0.20 (+0.12%). Year-to-date, NKE has gained 18.61%, versus a 20.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.