Overheard On Wall Street: Market Watchers Take On FFANY

The Fashion Footwear Association (FFANY) of New York held its June trade show this week, bringing shoe manufacturers, retailers and other industry players together to buy, sell and network.

Wall Street’s shoe insiders also made their FFANY rounds and came away with market buzz on companies that include Steve Madden Ltd., Wolverine World Wide Inc., Caleres and Crocs Retail LLC.

Read on for the chatter.

Wolverine World Wide Inc.
Analysts expressed mixed views on Wolverine and its footwear brands Sperry, Keds and Merrell following its FFANY showings.

Citi Research analyst Kate McShane noted a few positive observations about the firm after meeting with management, including CEO Blake Krueger. McShane said in a June 3 report on her sell-rated stock that Merrell is seeing “encouraging traction,” though the women’s division continues to underperform. McShane added that the new design team should be a “positive catalyst” for that division.

Regarding Merrell overall, McShane and Sterne Agee CRT analyst Sam Poser expressed concern about how the beloved classic brand will manage the challenges of new-customer acquisition.

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“After meeting with Merrell brand management and walking through the spring ’16 product line, we believe those running the brand are torn between treating the brand as sacred and driving revenue,” wrote Poser on June 5. “Management recognizes the need to create a better balance [between its Outdoor Performance and Active Lifestyle categories], but we fear that they will attempt to drive volume at the expense of brand sanctity.”

Recall that in early May, Gene McCarthy, Merrell’s brand president since August 2013, left the company and was replaced by Jim Gabel, president of Wolverine’s Performance Group.

Regarding Keds, Poser said that while the brand “remains too small to move the needle, [it] is trend-right and focused.”

Meanwhile, Wolverine is investing significantly in Sperry’s marketing this year with the “Odysseys Await” campaign, McShane said, noting also that a significant portion of that investment is in international, which is only 10 percent of the business.

Poser said that the firm enlisted a 5,000-person digital panel to aid its underperforming Sperry women’s business, and that the panel indicated a strong intent to purchase many of the new spring ’16 women’s styles.

Steve Madden Ltd.
Following her FFANY showroom tour, Wunderlich Securities Inc. analyst Danielle McCoy said she believes Steve Madden is better-positioned for next season.

“This fall, Steve Madden placed a greater emphasis on transitional products that ease the consumer out of her sandals and into her boots,” wrote McCoy in a June 4 note. “The overall collection consists of a wider array of fashion sneakers to its traditional and more fashion-forward dress styles. Despite a larger concentration on booties by competitors, Steve Madden’s tall-shafted boot assortment remains healthy, which we believe will allow it to stand out in the higher-margin category.”

Poser said he expects the firm’s offerings of “many smaller-volume items” will likely add up to strong revenue growth in the back half of 2015.

Poser and McCoy both called out Blondo — acquired by Steve Madden in January — as a solid addition to the company’s portfolio.

“[Blondo is] a better, comfort, waterproof boot brand,” wrote Poser. “Being housed under Steve Madden will allow the brand touchpoints to other large retailers, such as Zappos, Dillards and others. [And] Blondo will now be utilizing Steve Madden’s topline sourcing in order to get improved materials at lower prices.”

Susquehanna Financial Group LLP analyst Christopher Svezia and McCoy both came away from meetings with the firm’s CFO, Ken Hannah, with the impression that plenty of opportunity for continued improvement and upside exists at the firm.

“In some aspects, [Hannah] is looking to take a fresh approach and has been pleased with the team’s willingness to try new things,” wrote McCoy. “For example, while square footage has shrunk at Famous Footwear over the past few years, he believes there is an opportunity to increase both square footage and productivity within select markets that can support larger store formats.”

Svezia noted that both Famous Footwear and the brand portfolio at Caleres are “being benchmarked to best-in-class peers, while previous assumptions are being challenged on the back end to enhance optimization.”

“The company is looking into supplier rationalization from 50 factories today, given the opportunity for buying power. As such, we would expect this to consolidate over time toward more efficient facilities, with better utilization rates,” wrote Svezia. “In addition, reducing inventory has delivered a focus to avoid unnecessary inventory build at the expense of working capital.”

Crocs has had its share of challenges in recent years, but market watchers say the combination of its new operational leadership and new product should generate positive brand momentum in 2016.

“We were impressed by the overall improvement and focus of the product line. We were most impressed by new flats, sandals and wedges for women, and many of the kids’ styles,” wrote Poser on June 4. “Based on our checks, many retailers, both large and small, share our enthusiasm for the new product.”

McCoy observed that while the new collection’s is primarily molded footwear, enhanced features include “embellishments, different straps widths, slimmer shapes, a variety of prints and the addition of other fabrics.”

“The firm’s spring 2016 line has been cut in half, and women’s, representing 50 percent of the total business, appears to be the key focus, as there is more opportunity to enhance offerings,” McCoy added.

After meeting with Croc’s management, including new CEO Gregg Ribatt, Poser said the company is shifting from a manufacturing focus to a consumer focus.

As Poser described it, Crocs [now] identifies how much a customer would pay for a certain style and then chooses the materials.

“Previously, the company used whichever materials or processes were needed for their designs, determined the gross margin they wanted to achieve and, often, priced the product above what the customer is willing to pay,” wrote Poser. “The improved processes will drive sales and gross margin expansion.”

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