Overheard on Wall Street: The Buzz on Finish Line and Skechers

Market watchers have made it through another week on the Street and that means that they’ve done their share of speculating, evaluating and bidding.

Can’t keep up with everything the footwear industry insiders are saying? You’ve come to the right place.

Read on for FN’s Wall Street roundup.

Finish Line Inc.

Steven Strycula, director of consumer equity research at UBS Investment Bank, said he came away from meetings his firm hosted with Finish Line’s CEO Glenn Lyon and CFO Edward Wilhelm, on May 7, with a better understanding of the company’s ability “to defend margins, increase [free cash flow], and step-up share buybacks.”

“Finish Line is actively working with key vendors to procure greater ‘on-trend’ footwear assortment for back-to-school season and holiday,” said Strycula in a report. “And while Finish Line does not anticipate material running platform innovation this year, [the company] expects [gross margins] to improve sequentially and for SG&A to leverage favorably throughout FY16—especially as [same store sales] accelerate to [mid-single-digits] in [the second half of the year] from [low-single-digits] in [the first half of the year].”

Finish Line has spent much the last few months on a buying spree—with its acquisition-hungry Running Specialty Group (RSG) snapping up New York-based running and triathlon specialty chain JackRabbit Sports, two Utah Stride Rite stores and Midwest retailer Indiana Running Co. between February and March.

Now, Strycula says there are opportunities for the company to improve gross margins, streamline operations and consolidate stores under a single banner.

“After several years of elevated investment [spending] to support new businesses (400 Macy’s shops and 76 Running specialty stores), Finish Line has shifted its attention to improving profitability for ecommerce, Macy’s and RSG,” Strycula wrote. “While Nike.com remains a competitive threat for Finish Line, we believe Finishline.com can still grow double digits and scale to 19 percent EBIT margins from mid-teens.”

Skechers USA Inc.

Analysts remain bullish on the brand that posted 40 percent revenue gains in Q1 on April 22—many of them upping their estimates for the company this week citing high order backlogs and accelerated growth in market share.

“Skechers’ overall strength across major footwear categories continued to support our thesis that the brand’s long-term growth will be sustained by a more diversified product model,” wrote Citi Research analyst Kate McShane in a note this week.

McShane said she increased FY15 EPS estimates for the brand, to $4.30 from $4.15, to reflect stronger U.S. wholesale growth through the remainder of the year, partly offset by slightly lower gross margins on FX.

“We also conducted April store checks in New York,” McShane wrote. “Skechers store traffic continued to outperform the rest of the mall, featuring a comfortable assortment of Stretch Weave, Relaxed Fit Memory Foam, and newer sandals—key trends included yogaslings, sport sandals, and molded footbeds.”

Sterne Agee analyst Sam Poser upped his price target for the Manhattan Beach, Calif.-based company’s stock, from $90 to $111, and made some comparisons between the brand and other footwear power players in a note on May 8.

“On a comparative basis, Skechers deserves a higher multiple, especially when compared with Steve Madden and Wolverine World Wide Inc.,” Poser wrote. “While currently trading at a similar out year multiple to that of Skechers, both Steve Madden and Wolverine’s top-line and EPS growth is well below that of Skechers, based both on our own and consensus estimates.”

His checks, Poser said, continue to point to robust sell-through re-orders.

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