Overheard On Wall Street: Nordstrom, Kohl’s, Steve Madden And Foot Locker

Steve-madden-shoes
Gingur by Steve Madden.
Zappos.

The rest of America might be on vacation, but Wall Street has been in the office all week. As The Street cranked out numbers and analyzed the week’s buzziest business stories, a few footwear names stirred the chatter.

Check out what FN’s business editor overheard this week.

Nordstrom Inc.
The Seattle-based retail chain’s Q2 earnings, released this week, were a source of hope for market watchers who have been increasingly down on d-stores in the recent quarter. The company’s shares soared Thursday after it reported sales gains of 9 percent and a comp improvement of 5 percent.

Cowen & Co. analyst Oliver Chen said Nordstrom’s “bigger-picture retail drivers” are what’s leading the firm’s growth.

“We believe Nordstrom is outperforming peers based on customer-centric approach, multichannel portfolio with Rack and online driving comp, and full-line changes attracting a younger demographic,” Chen wrote in an Aug. 14 note. “We believe Nordstrom is positioned to outperform department-store peers over 2H15.”

Although Chen discussed industrywide inventory overages in previous notes, the analyst said Nordstrom is one firm that’s getting it right in the supply-chain arena.

“Cleaner inventories allow for [prospective] for upside to the second-half gross margin,” Chen wrote.

UBS Investment Bank analyst Michael Binetti upped his EPS forecasts for the firm to $3.86 from $3.85, citing increasing confidence in the company’s premium valuation and its ability to deliver growth through 2H15.

“We believe Nordstrom’s exposure to key growth areas within softlines — off-price, e-commerce, international with Canada — will continue to support a premium valuation versus pressured mid-tier competitors,” Binetti wrote.

Kohl’s Corp.
Analysts have been mixed on Kohl’s after the firm disappointed investors Thursday with an earnings miss and a significant year-over-year decline of 44 percent in net profits during the second quarter.

Chen pointed out that within Q2, footwear in particular “performed better than the company [as a whole], with strength in athletic and casual shoes.” He still ranks the company “outperform” despite its earnings slump.

“We’re encouraged by Kohl’s initiatives, such as increasing emphasis on newness with national brands, the Yes2You loyalty program, digital omnichannel enhancements and personalization/localization efforts to improve top-line trends,” Chen wrote. “That said, we’re concerned Kohl’s is still vulnerable to adverse weather, volatile traffic and an aggressive promotional environment making upside to comp and margin guidance appear limited.”

A more cautious Binetti downgraded Kohl’s from “buy” to “neutral,” noting that his initial “buy” rating was based on the potential for initiatives such as loyalty and beauty to support more consistent sales growth.

“A second consecutive same-store-sales miss raises concerns that the initiatives aren’t enough to combat weak industry trends — with no change in sight, in our view,” Binetti wrote.

Kohl’s said it now expects its FY15 EPS to come in at the low range of its prior guidance of $4.40 to $4.60.

“We think Kohl’s dropped enough hints on its call that even the low end of the $4.40 to $4.60 guide will be a stretch,” Binetti warned.

Steve Madden Ltd.
Sterne Agee CRT analyst Sam Poser said he’s more confident in Steve Madden’s “near-term and medium-term” prospects after two days on the road with CEO Ed Rosenfeld and Finance Director Derek Browe.

“Steve Madden is managing its business exceptionally well, and management continues to be pleased with recent trends in their own retail stores as well as sell-through rates at its wholesale partners,” Poser wrote in an Aug. 13 note. “Trends this year are broad-based and not tied to one item.”

Poser said he is now more bullish on the firm — which is increasingly receiving credit for reinvigorating trend freshness in the fashion footwear space — and believes Steve Madden will return to a mid-teen operating margin by the end of 2016.

“Such improvement will come from strong same-store sales, an improved core wholesale business, the rollout of Dolce Vita and Blondo and lower markdown allowances,” Poser wrote.

Foot Locker Inc.
After hosting store visits at Foot Locker’s House of Hoops, Kid’s Foot Locker and Footaction this week, Citi Research analyst Kate McShane said the retailer appears to have a strong set up for the back-to-school and its athleisure focus, in particular, has shifted into high gear.

“Foot Locker’s assortment reflects a more meaningful shift toward casual-athletic, led by popular platforms like Nike, Roshe & Adidas ZX Flux and expanded displays of Vans, Converse, and Puma Lab,” McShane wrote in an Aug. 13 note. “While true runners appear to be shifting their purchases to online, traditional running brands like Asics, New Balance & Saucony are adapting quickly to shifting preferences by offering more on-trend retro/casual styles at Foot Locker and other athletic specialty [retailers].”

McShane also said she expects Foot Locker to benefit disproportionately from Nike and Under Armour’s recently signed NBA deals due to Foot Locker’s exclusive branded shop-in-shops.