Analysts Unveil Predictions for Back Half

Analysts Unveil Predictions for Back Half
Scott Krasik

BOSTON — It was a rocky road for many footwear firms during the first half of 2013, and market experts expect a mixed back half as well.

From wacky weather to uneven mall traffic, vendors and retailers continue to battle an uncertain climate, according to analysts.

Still, there will be clear winners, from innovative brands such as Steve Madden, Nike and Sam Edelman to hot stocks such as Foot Locker Inc. and Genesco Inc.

Here, Sam Poser of Sterne Agee, Scott Krasik of BB&T Capital Markets, Steven Marotta from CL King & Associates, Kate McShane from Citigroup and Jeff Van Sinderen of B. Riley & Co. discuss key issues and picks for the rest of the year.

Hot Issues
Weather: Footwear players are already wounded by two unseasonably warm winters (and a cold spring), and weather is expected to be a major factor heading into fall.

At the beginning of this year, it generally did not get cold until February, noted McShane. “Retailers broke price on what they were selling because they thought it was never going to get cold,” she said, and that negatively impacted profit margins.

As a result, for this fall, stores have been “more cautious with ordering in advance, especially with outerwear and footwear,” she added.

However, should the weather get cold quickly this fall, retailers could benefit from better-than-expected full-price sales, though they likely won’t be able to chase sales with every product, McShane said.

On the flip side, Van Sinderen noted, “The fact that it is hot right now has helped [companies] move leftover spring merchandise.”

Marotta added, “Seasonal weather always helps [with foot traffic] no matter what season you’re in.”

Still, with the weather as a serious wild card, planning conservatively is key, market watchers said.

It’s important to keep open-to-buy available, noted Van Sinderen. “Try not to commit to too much inventory too early,” he said.

Speed to market:
The brands and retailers that can create newness by presenting variety every month — for example, different colors — will win the consumer dollar, Poser said.

“When you bring in your whole mix at the beginning of the season, it looks old six weeks later,” he said, but cautioned: “It’s simple to say. But it’s not necessarily simple to do. That’s part of the dilemma.”

In addition, Poser encouraged brands to find a way to get product into retail doors faster at the start of each season.

“It’s really a matter of ‘where there’s a will, there’s a way,’” he said. “Given the Internet and the speed of information, everyone wants everything now.”

Mall traffic:
“Erratic” is how Van Sinderen described mall traffic for the first and second quarters. For his part, Marotta said it has been “negative for the year.” But both agreed that seasonal weather patterns could help improve foot traffic.

Winning Brands

Sam Edelman: “He is really pushing the design aspect of juniors’ footwear, [and prices are accessible],” Krasik said of the brand, which is owned by Brown Shoe Co. “For the amount of design and the workmanship, you’re getting value.”

Nike:
“They are outperforming the industry,” said McShane, citing strength in the brand’s Jordan and Zoom divisions. “There’s a lot of depth to their portfolio.”

Steve Madden:
The brand has continued to successfully take share in department stores, said McShane and Van Sinderen. In addition, the firm’s test-and-react model is “second to none in the business,” Marotta said. Thanks to a small factory adjacent to its headquarters in Queens, N.Y., Madden can “make small runs and test in their stores and decide if they can make a run of it,” Marotta added.

Stock Picks
Foot Locker Inc.: Investments in the kids’ business and remodels at Champs and Foot Locker doors bode well for sales performance, said McShane. From a strictly stock perspective, Foot Locker shares are up about 12 percent versus 35 percent for the group she tracks, so there is room for the stock price to increase, she said.

Steven Madden Ltd.: Van Sinderen touted Madden’s consistent, “phenomenally great product that the customer really wants. … Even though footwear may not be selling gangbusters, they’re getting relatively strong sell-throughs versus a lot of different brands.” The stock is up 23 percent from Jan. 2.

Genesco Inc.: Shares of Genesco, owner of the Journeys retail chain, are up 26 percent from the start of the year. “If a teen is looking for technical athletic footwear, there are a lot of choices in the mall. If they are looking for any other footwear, there’s one choice and that gives Journeys a material competitive advantage,” said Marotta.