Several major players, including VF Corp., Steve Madden Ltd., Skechers USA Inc. and Wolverine World Wide Inc., have posted first- quarter results in the last two weeks.
What trends are emerging? Read on.
Port Uncertainty Continues
While workers at the West Coast ports have moved more quickly than expected in unwinding the container backlog, the impact of the nine-month-long dispute between port operators and the dockworkers’ union is still being felt across the footwear industry.
Under Armour Inc., Rocky Brands Inc. and Steve Madden are among the firms reporting an effect on earnings — and some companies see those issues continuing.
“We expect the negative impact from the port delays to be greater for us in the second quarter than it was in Q1,” said Steve Madden CEO Edward Rosenfeld during the company’s Q1 conference call on April 24. “While we were able to avoid significant order cancellations, we lost reorder business due to the late arrival of spring goods, and also received fewer orders for upfront business with the off-price retailers.”
Another side effect has been the congestion issues that have developed as workers attempt to move the backlog of containers out of the terminal gates and onto trucks and rail cars.
Madden and Rocky Brands reported delayed deliveries, with the former pointing to pile-ups at distribution centers. At Under Armour, increased airfreight charges were an added challenge in Q1.
Wolverine, Under Armour and others have already reported a drag on margins due to currency pressure.
“The strengthening of the U.S. dollar negatively impacted gross margins by approximately 50 basis points for the period, as we purchase the majority of our inventory for international businesses in U.S. dollars,” explained Brad Dickerson, Under Armour’s CFO and COO, during the firm’s conference call.
Looking ahead, Wolverine said it expects the stronger dollar to have a bigger effect on earnings in Q2 than in Q1. Meanwhile, Skechers, Steve Madden and Iconix Brand Group Inc. have emerged resilient against currency headwinds, with Skechers and Steve Madden seeing double-digit jumps in several countries that were negatively affected by currency shifts and Iconix enjoying a $10.5 million pre-tax foreign- currency translation gain in Q1.
Despite currency pressures, international expansion remains a priority for several footwear companies, including Nike, Under Armour, Skechers and VF Corp.
The Chinese market, in particular, continues to be a key target. Iconix — which acquired full ownership and control of its Iconix China joint venture earlier this year — said it expects double-digit international growth in the year ahead, with particular focus on the world’s most populous country.
“We view China as a major opportunity and are excited to develop new business opportunities through traditional licensing, as well as monetizing our existing brand partnerships — partnerships that have successfully rolled out over 900 stores throughout the China mainland,” said Iconix CEO Neil Cole.
Similarly, Skechers CFO and COO David Wein- berg said the company expects China, its biggest joint venture, to be a standalone $100 million business in 2015. New York-based Coach Inc. said on April 28 that it still plans to open 20 stores in China despite concerns about “macro issues and geopolitical events” in the country.
Where Are the Trends?
The lack-of-trends concern has been front and center for the past year, with many executives citing staleness in the market. But there could be brighter days ahead.
“We were pleased to see stronger fashion footwear trends emerge,” said Madden CEO Rosenfeld in the Q1 conference call. “Customers responded favorably to our new products across a number of categories, including dress shoes, casuals and sneakers.”
Los Angeles-based B. Riley & Co. analyst Jeff Van Sinderen said West Coast shoppers have been showing an interest in espadrilles and sandal styles.
Wunderlich Securities Inc. analyst Danielle McCoy noted that she is seeing similar trends emerge in the Northeast as temperatures begin to rise.
“With warm weather finally hitting here on the East Coast, we have seen a push to fashion-oriented sneakers — and anything with espadrille bottoms — as well as different fabrics and leather slip-ons,” said McCoy. “Also, thicker platform-type bottoms are working. This plays very well in Steve Madden’s wheelhouse.”