Shoe Cycle Strong Amid Some Downgrades

The footwear cycle is still kicking, said analysts, even if they lowered ratings and estimates of some firms this week ahead of anticipated earnings releases.

Sterne Agee analyst Sam Poser, who downgraded K-Swiss Inc., Columbia Sportswear Co. and Dick’s Sporting Goods Inc. from “neutral” to “underperform” on Monday, said, “The footwear business is still killing it, in general. The ones that aren’t doing well are specific ones that are executing poorly.”

Poser also downgraded Kenneth Cole Productions, Wolverine World Wide, Shoe Carnival and Hibbett Sports from “buy” to “neutral.”

Although he considers Wolverine one of the best-managed companies in the footwear space, Poser said in his note that the firm “generally fails to have a major breakout initiative … that drives business [to be] materially better than guidance and expectations.”

Kenneth Cole’s downgrade, he wrote, “is predicated on a disconnect between what the company believes its brand is and what the consumer believes it is, and an overreliance on department store business … and the likelihood that it will take about two years at best to reposition the Kenneth Cole New York brand.”

Meanwhile, Scott Krasik, analyst at BB&T Capital Markets, lowered his price target of Skechers USA Inc. to $16, from $18 previously, and cut his earnings estimates for the third and fourth quarters ahead of the firm’s earnings release next week.

“[This is because] recent channel checks suggest that sales in the U.S. are running significantly negative year-over-year, [and] discussions with several of Skechers’ largest customers have revealed that the women’s sport and children’s divisions deteriorated further through the [back-to-school] period,” he wrote in his research note.

Two analysts also lowered estimates for Crocs Inc. after the firm revised its third-quarter guidance downward Monday evening due to a lackluster season in Europe, stunning investors and sending its shares plummeting nearly 40 percent in Tuesday morning trading.

“Well, we certainly didn’t see this coming and we don’t think anybody did,” wrote Robert Samuels, analyst at WJB Capital. “The stock will be placed in the penalty box for the next several months, or at least until there is some visibility into spring business. In this type of choppy trading environment, there aren’t likely to be too many people willing to take a chance here.”

Poser added, “It’s not the end for Crocs. They have had great product, just poor execution.”

Some names in the industry are still expected to beat expectations in the coming weeks.

“It’s going to vary company by company, although the stock markets are exceptionally sensitive to any potential slowdown,” said Krasik. “Deckers is doing very well in the U.K., and [Steve] Madden is having a pretty good fall. Certainly, the athletic guys are as well.”

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