Steady Shoe Stocks Beat Indices

NEW YORK — Despite a tumultuous time in the U.S. equities market, footwear stocks are gaining strength.

For the first half of 2012, a basket of 38 industry stocks tracked by Footwear News outperformed the benchmark indices on the New York Stock Exchange.

Between the opening bell on Jan. 3, 2012, and the close of business on June 29, footwear share prices rose a median of 7.7 percent, with some hitting 52-week highs in the interim.

By comparison, the S&P 500 Index grew 6.7 percent over the same period, while the Dow Jones industrial average advanced just 3.9 percent.

Analysts told FN the footwear industry is holding steady amid a volatile time in the markets, caused by continued uncertainty about the macroeconomic environment in Europe.

“It was a tale of two quarters,” said Sterne Agee analyst Sam Poser. “Many companies had a run-up in the first quarter, then fell again in the second. Steven Madden Ltd., for example, was cranking it in the first, then got run over in the second.”

Overall, however, shoe stocks have done well and have held up better than other areas of consumer discretionary spending, said Christopher Svezia, analyst at Susquehanna Financial.

“The footwear business has seen strong product innovation, good pricing and there’s still a lot of freshness and relevance in color and style,” Svezia said. “But brands that have exposure in Europe are a different story.”

Diana Katz, analyst at Lazard Capital Markets, agreed: “There’s been more pressure on those stocks that have any exposure to Europe, such as VF Corp. It just seems all the smart money is shorting those names.”

The good news is the athletic cycle is still strong, analysts said. Poser noted, “[Retailers including] Foot Locker Inc. and Hibbett Sports Inc. held up well, and [brands such as] Under Armour Inc. held in better than most.”

Robert Samuels, analyst at The Benchmark Co., pointed out that “even Nike Inc., which has trouble overseas, is still very strong in the U.S., and they’re the bellwether in the athletic space.”

In fact, athletic retailers were among the strongest first-half performers. Dick’s Sporting Goods Inc. advanced 33.4 percent year-to-date; Hibbett Sports gained 31 percent; Foot Locker rose 28.3 percent; and Shoe Carnival Inc. finished the period up 26 percent.

But the growth in stock prices is slowing. In the first half of last year, a similar basket of stocks rose a median of 9 percent. That means that, looking ahead, it’s getting harder to add on the gains after experiencing two years of recovery, explained Jeff Van Sinderen, analyst at B. Riley & Co.

“And there are more things to be concerned about as we look into the back half,” he added. “Though some of these stock prices are already down, so [perhaps] a lot of the concerns are already priced in the stock.”

Meanwhile, Samuels noted, “There are certainly headwinds going into the second half. But gas prices coming down somewhat will help. And after coming off a very warm winter [last year], if the weather is as it should be later this year, it will be a positive.”

The biggest gainer in the first half was retailer Bon-Ton Stores Inc., which more than doubled to $7.81 a share on June 29, from $3.30 on Jan. 3.

Skechers USA Inc. had the second-best performance, gaining 61.9 percent to $20.37 a share, from $12.58. The firm benefited from a ratings upgrade by Poser on June 11. He noted that the firm was “over the hump,” thanks to new product, growth in key domestic accounts and international markets, and improvements in its inventory and expense control.

Svezia also noted of Skechers, “They’re coming off a really, really low number, and the company finally beat numbers after a few quarters of misses. It sounds like there’s a pulse, so people gravitate toward it.”

Coming in third was Collective Brands Inc., which is in the process of being broken up among new owners Wolverine World Wide Inc., Blum Capital and Golden Gate Capital. The deal, announced on May 1, valued the firm at $21.75 a share.

Cabela’s Inc. was fourth, while Brown Shoe Co. rounded out the top five gainers, surging 47 percent to close at $12.91 at the half-year mark, after announcing at its Investor Day two days earlier that it aims to achieve long-term operating margins of 8 percent and returns on invested capital of 15 percent, as well as grow sales per square foot 22 percent at the Famous Footwear chain by 2014.

Meanwhile, J.C. Penney Co., Deckers Outdoor Corp. and Bakers Footwear Group Inc. were the bottom three performers.

J.C. Penney, dealing with losses amid changes in management and strategy, slid 33.4 percent to $23.31 a share.

Deckers, which is trying to regain investors’ confidence with respect to the health of the Ugg Australia brand, lost 42.4 percent to finish at $44.01 a share.

Bakers, still struggling with liquidity and negative shareholder equity, plunged 50.8 percent to 31 cents a share.

It’s worth noting that firms involved in mergers and acquisitions or buyouts, including Kenneth Cole Productions Inc. and Wolverine, were among the double-digit gainers, and analysts said dealmaking will continue, which should help buoy market sentiment.

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