Forget Nike, Buy These 3 Footwear Stocks Instead
Despite weathering several constraints related to the COVID-19 pandemic, indeed perhaps because of them, the footwear industry is in a reshaping mode, thanks to expanded digital platforms, rising consumer spending,...
Despite weathering several constraints related to the COVID-19 pandemic, indeed perhaps because of them, the footwear industry is in a reshaping mode, thanks to expanded digital platforms, rising consumer spending, and pent-up demand. However, to us the sneaker giant Nike (NKE) doesn’t look fit enough financially to capitalize on the industry tailwinds. So, we think it could be worth betting instead on footwear stocks Foot Locker (FL), Shoe Carnival (SCVL), and Caleres (CAL), which possess strong fundamentals. So, let’s discuss these names.
The footwear industry suffered declining sales and profits last year due to the COVID-19 pandemic. However, efforts to strengthen digital platforms, launch smart concepts of connected fabrics, customized material innovations, rising consumer spending and pent-up demand for multifunctional convertible shoes have been driving the footwear market’s growth of late. The sector is projected to witness a significant boost in both e-commerce and brick-and-mortar store sales. The global footwear market is expected to reach $281.2 billion by 2026, registering a 3% CAGR.
Although the leading athletic footwear company NIKE, Inc. (NKE) is preparing for the metaverse, its business has most recently been impacted by global supply chain issues. In its last earnings report, the company lowered its fiscal 2022 outlook to account for longer transit times, labor shortages, and extended production shutdowns in Vietnam. Also, NKE expects its full-year sales to increase by mid-single digits, compared with a prior outlook of low double-digit growth. Furthermore, analysts expect NKE’s EPS to decrease 19.2% in the current quarter and 17.8% in the next quarter.
Therefore, we think fundamentally sound footwear stocks Foot Locker, Inc. (FL), Shoe Carnival, Inc. (SCVL), and Caleres, Inc. (CAL) could be ideal bets instead to capitalize on the industry’s solid growth prospects.
Foot Locker, Inc. (FL)
FL is a prominent athletic shoe and apparel retailer. The York City-based concern sells accessories, equipment, and athletic footwear under various brand names including, Foot Locker, Kids Foot Locker, Champs Sports, and Sidestep. FL operated 2,998 retail stores and 127 franchised Foot Locker stores across 27 countries as of January 30, 2021. The company is known for celebrating sneaker and youth culture around the globe.
This month, FL acquired atmos for $360 million. It is a digitally-led, premium, global retailer headquartered in Japan. Through this acquisition, the companies expect to create significant long-term value for shareholders, consumers, vendor partners, and employees. Also, FL expects atmos to generate low double-digit sales growth annually and low double-digits to mid-teens EBITDA margins over the next five years and be accretive to EPS in its fiscal year 2021.
FL’s sales for the second quarter, ended July 31, 2021, increased 9.5% year-over-year to $2.28 billion. The company’s income from operations grew 282.6% from its year-ago value to $264 million. Its net income rose 855.6% from the prior-year quarter to $430 million. Also, the company’s EPS increased 851.2% year-over-year to $4.09.
FLO’s revenue is expected to increase 17.4% year-over-year to $8.86 billion in its fiscal year 2022. The company has surpassed the consensus EPS in each of the trailing four quarters. Its EPS is expected to grow 152% in the current year. The stock has surged 44.1% in price over the past year.
FL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Value and Momentum. We have also graded FL for Stability, Sentiment, Quality, and Growth. Click here to access all of FL’s ratings. FL is ranked #8 of 38 stocks in the B-rated Athletics & Recreation industry.
Shoe Carnival, Inc. (SCVL)
SCVL is an Evansville, Ind.-based footwear retailer that has stores located in 35 states and Puerto Rico. The company also markets and sells its products through its e-commerce websites. SCVL offers a wide range of footwear collections for men, women, and kids, along with handbags, lunch boxes, backpacks, athletic products, and other accessories. The company operates its business through its subsidiaries, SCHC, Inc., and Shoe Carnival Ventures, LLC, and SCLC, Inc., subsidiaries of SCHC, Inc.
During the third quarter, ended October 30, 2021, SCVL’s net sales increased 29.8% year-over-year to $356.34 million. The company’s gross profit grew 64.1% from its year-ago value to $144.06 million. Its operating income rose 209.6% from the prior-year quarter to $62.42 million. Also, the company’s net income increased 219.1% year-over-year to $46.84 million.
Analysts expect SCVL’s revenue to increase 25.8% year-over-year to $1.23 billion in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Its EPS is estimated to grow 703.6% in the current year. The stock has soared 147.5% in price over the past year.
SCVL’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Momentum, and a B grade for Value and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see SCVL’s ratings for Stability, Sentiment, and Growth here. SCVL is ranked #14 of 63 stocks in the A-rated Fashion & Luxury industry.
Caleres, Inc. (CAL)
CAL is a global footwear company that operates through Famous Footwear and Brand Portfolio segments. The St. Louis, Miss., company offers licensed, branded, and private-label athletic, casual, and dress footwear products to women, men, and children. Its brands are offered globally, including in 1,200+ branded retail locations, department and specialty stores, branded e-commerce sites, and many third-party retail sites.
In September, CAL appointed Suzy Cirulis as Vice President, Customer Making. The company believes that Cirulis’ experience in CRM, retail and digital marketing should help the company develop new ways to drive customer value, leveraging insight and data to power strategic decisions. This should help the company to create deeper connections with the current customers and build brand connections with new ones.
During its fiscal third quarter, ended October 30, 2021, CAL’s net sales increased 21.1% year-over-year to $784.16 million. The company’s gross profit grew 30.5% from its year-ago value to $335.35 million. Its operating earnings rose 305.2% from the prior-year quarter to $81.32 million. Also, the company’s net earnings increased 299.9% year-over-year to $59.69 million.
CAL’s revenue is expected to increase 28.5% year-over-year to $2.72 billion in its fiscal year 2022. The company has surpassed the consensus EPS in each of the trailing four quarters. Its EPS is expected to grow 342.9% in the current year. The stock has gained 87.7% over the past nine months and 136.5% over the past year.
It is no surprise that CAL has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Momentum and Growth.
Click here to see the additional POWR Ratings for CAL (Sentiment, Stability, Quality, and Value). CAL is ranked #8 in the Fashion & Luxury industry.
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NKE shares fell $0.24 (-0.14%) in premarket trading Friday. Year-to-date, NKE has gained 21.03%, versus a 26.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.