Athletic To Drive Shoe Stocks in 2015

It’s been a long five years since the U.S. officially came out of the recession.

As anemic as the recovery has felt at times, market watchers are viewing 2015 with some optimism thanks to lower gas prices, a better consumer outlook and slowly strengthening housing and job markets.

“Footwear could get an incremental boost, contrary to the mid-cycle scenario, because oil price declines will benefit the lower-end consumer the most,” said analyst Camilo Lyon at Cannacord Genuity. “[Footwear] can stand to benefit because the disposable income is enough to make one more small purchase; it’s not that you can buy a new iPhone, but you can buy shoes or a dinner out.”

Still, the industry is under pressure from the ongoing dispute at West Coast ports, currency fluctuations abroad and the fact that the U.S. is in a mid-cycle recovery, which favors big-ticket items. Oil price declines have been the buzz for many people watching the stock market in the past several months, but analysts say that’s only part of the story in 2015.

Every analyst Footwear News interviewed said the biggest focus for shoe companies — from retailers to brands — is the growing influence of athleisure in each aspect of the consumer’s life.

Hoka One One is one brands analysts think has the potential to shake up the running market.
Hoka One One is one brands analysts think has the potential to shake up the running market.
CREDIT: Hoka One One

In the strictly athletic segment, insiders are bullish on basketball and new running brands. As the overall running market has refocused on casual styles rather than performance in the past several seasons in part due to an over-reliance on Nike Free, newer brands such as Hoka One One and Under Armour have grabbed analyst and consumer attention.

Mitch Kummetz at Robert Baird & Co. said he will focus most on Under Armour Inc. in the coming year. He expects much stronger performance from the company’s footwear category. “Under Armour’s footwear business is still gaining momentum,” said Kummetz. “It’s still a small part of the company, but it’s a big part of its story in terms of long-term growth.”

Deckers Brands, a consistent leader in athleisure, remains a key stock for 2015. And Teva’s unique interpretation of the footbed sandal again looks promising in the new year, along with growing buzz for Hoka One One.

Deckers’ growing Ugg assortment, including the debut of the lower-cost Ugg Free, plus a stronger focus on technology for the brand both online and in-store, have translated into solid revenue.

“Deckers is one of my top picks because they’re focusing on omni­channel, diversifying to be less Ugg-dependent and doing a ton of testing on the assortment. They really capture what consumers are looking for and what they want,” said Danielle McCoy of Wunderlich Securities.

As yoga pants and leisure wear continue to drive apparel sales, analysts named Skechers as another probable market mover in 2015, with the right mix of styles, targeted marketing and value for the consumer.

While athleisure has set companies like Nike Inc., Deckers, Skechers USA Inc. and Under Armour up for success, women’s brands are still waiting for 2015’s “a-ha” trend. And experts don’t think they’re going to get it.

The lack of “newness” for women’s has impacted some important stocks, including Steve Madden and DSW Inc.

Analysts were split on how 2015 will play out for the companies. “There hasn’t been a real fashion trend for Madden,” said analyst Jeff Van Sinderen at B. Riley and Co.

But other market watchers were confident that management is making the right moves to get back on track. Last year, Madden bought Brian Atwood and Dolce Vita, and the company recently acquired its Mexican arm.
Likewise, Columbus, Ohio-based DSW Inc. has started to gain

momentum after its women’s business put up positive comparative-sales figures.

Meanwhile, the growing strength of the dollar abroad might have positives, as brands like Ugg, Crocs and Steve Madden seek to expand globally, analysts are watching how currency changes are going to impact earnings.
The recent dips in the Russian ruble have hit Adidas Inc., and the dollar’s nine-year high against the euro can be a burden on growing brands.

“We’ve seen some stabilization in Europe, but the biggest headwinds facing the companies we follow with European exposure is the strengthening of the dollar. It’s something we have to take a closer look at,” said Wunderlich Securities’ McCoy.

Market Movers: Analysts pick stocks to watch in 2015.
Probable Hits
BWS — Brown Shoe Co.
“They have two primary investment pieces. One is Famous Footwear and its ability to drive incremental traffic,
and there is momentum on the
wholesale side.” — Steve Marotta

SKX — Skechers USA Inc.
“The company is diversified, and in terms of brand and product, it resonates
with the consumer. Some people might argue that they sort of invented active/athleisure.” — Jeff Van Sinderen

Gaining Steam
CROX — Crocs Inc.
“Crocs isn’t a supernova, but it’s well-diversified geographically and by product category. This is a company that is ‘turnaround-able.’”  — Steve Marotta

DSW — DSW Inc.
“DSW is going to benefit from consumers who are a bit more price-conscious.
We saw some stability toward the end of the year, and I’d love to see that
continue.” — Camilo Lyon

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