Q1 Flashback: Defining Issues & The Firms That Hit the Mark

On the floor of the New
The floor of the New York Stock Exchange.
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The shoe industry spent the first few months of 2015 grappling with West Coast port woes, the volatile foreign-exchange market and unseasonable weather. Now that the first quarter is nearly complete, FN looks back at how those heavily debated issues played out and the standout performances and key expectations moving forward.

Throughout Q1, a few companies garnered industrywide attention for posting major Wall Street beats. Among them were Skechers USA Inc., Caleres (formerly Brown Shoe Co.) and Sequential Brands Group.

Coming off 25 percent gains in year-over-year net income and strong performances from Famous Footwear as well as brands in its Contemporary and Healthy Living categories, Caleres upped its EPS guidance for the remainder of the year. “The beat and the raise were very attractive for Caleres, which has momentum right now,” said Steven Marotta, CL King & Associates analyst. “They’re well-purchased for back-to-school in categories that are performing well.”

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The shoe industry spent the first few months of 2015 grappling with West ... shcarnival.wordpress.com

Skechers generated buzz when it posted a 40 percent jump in revenues as well as double-digit gains in wholesale and retail and single-digit gains in e-commerce. On the heels of the release, the company’s share price surged, and analysts have since been ex-tremely bullish on the firm and its product offerings.

“The demand for Skechers remains very robust,” wrote Sterne Agee CRT analyst Sam Poser in a note. “Our proprietary checks indicate that both large and small retailers remain very bullish on the brand.”

Other standout performers included Steve Madden Ltd., which served up a slight beat in Q1. The brand “is teed-up well for back-to-school,”  Marotta said, and is expected to take advantage of improving fashion footwear trends. Wunderlich Securities Inc. analyst Danielle McCoy pointed to similar signs of improvement for Madden in a note on June 4 following her FFANY tour.

“With diversification increasing across the portfolio, and trends shifting in its favor, the company is setting the stage for a strong second half of 2015,” wrote McCoy.

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While all of the anticipated issues — weather, the ports and currency — made an appearance in some form in the quarter, a few factors played out differently than market watchers had forecasted. “The ports were a major issue, but not as bad as anticipated going into the quarter,” explained Marotta.

Still, several companies said the backlog stemming from the port dispute impeded their financial performance in Q1, including Wolverine World Wide Inc., Macy’s Inc. and Under Armour Inc., which cited increased air-freight charges for some of its losses in the quarter. Caleres is one example of a firm that was overly cautious about the potential for shipment delays going into the quarter and may have over compensated in its guidance. “The overall impact ended up being relatively minimal,” Caleres CEO Diane Sullivan said during the May 27 earnings call.

Companies with value-pricing models, such as DSW Inc. and Shoe Carnival Inc., were able to tap into the abundance of discounted footwear available in the marketplace thanks to the port situation.

“While we’ve heard there was a good amount of excess product for the discounters to get their hands on, the delayed timing of products making its way to the selling floor likely impacted May sell-throughs,” said McCoy.

Macy’s and Hibbett Sports were among the companies hurt by the extended winter, while VF Corp. and Puma absorbed currency hits in the quarter. Looking ahead, analysts say that issues from the weather and the foreign-exchange markets’ volatility will continue to spill over into the remainder of the fiscal year.