Overheard On Wall Street: Wolverine & Genesco

Footwear News was on to something this week when we posted “Why Department Stores Are Off To A Tough Start In 2016” just two days before Macy’s Inc. announced disappointing comps for the 2015 holiday season and a turnaround plan that could result in more than 3,000 layoffs.

And, let’s not forget the global market turbulence resulting from China’s economic struggles that took Wall Street by storm Monday, Tuesday and again on Friday — needless to say, it has been a chaotic week on The Street.

In addition to the headline making news items you already saw, here are a few of Wall Street’s musings that FN’s business editor overheard this week.

Wolverine World Wide Inc.

After a disappointing third quarter, in which ongoing challenges led to more revenue and profit declines, Wolverine’s stock has remained pressured and several analysts continue to be sidelined on the firm.

This week, Sterne Agee CRT analyst Sam Poser upgraded the firm’s rating from hold to neutral to reflect his belief that “the problems facing Wolverine are built into the stock price,” yet he contended that he does not believe Wolverine will “fix its product issues with the Merrell and Sperry brands in the near future.”

“On its 3Q15 conference call, management discussed its expectation for a very promotional Q4. However, we believe Wolverine did not take into account the very warm November and December weather, which further exacerbated the already elevated inventory levels,” Poser wrote. “While Merrell and Sperry brands are less weather sensitive than many other brands, high inventory levels in the retail channel and increased promotions of other brands should do collateral damage.”

Citi Research analyst Corinna Van der Ghinst explained, in a Jan. 8 note, that while the company’s Q4 guidance seemed conservative, she believes ongoing pressures could still result in another earnings miss when the company reports.

“We think there could be more incremental negative pressure from a potential miss on even weaker than expected selling trends and gross margins in the quarter,” Van der Ghinst wrote. “…While Heritage likely posted a solid double-digit growth quarter, we believe Merrell, Saucony, and Keds likely underperformed versus plan. 1H16 guidance could be further pressured by retailers pushing out spring ’16 deliveries and limited potential for reorders, despite lapping last year’s port disruptions.”

Van der Ghinst reduced her price target for the stock to $18, from $23, and also maintained a neutral rating, seeing limited downside risk to valuation.

Genesco Inc.

For some time, Genesco’s two major retail chains had been pulling the company’s profits in opposite directions — with family footwear chain Journeys boosting margins and athletic headwear retailer Lids creating a drag. But, not only did both divisions show solid gains in Q3, surpassing Wall Street’s sales and profit bets, the company also posted comparable sales growth of 7 percent in the quarter.

In December, CL King & Associates analyst Steve Marotta dubbed Genesco his number one pick for 2016 and, just this week, Poser noted that recent trends — namely manufacturer-approved price reductions for Ugg boots and the resurgence of NFL team the Seattle Seahawks — could bode well for Journeys and Lids, respectively.

“[Ugg’s parent company] Deckers will be providing Journeys markdown allowances in January, as Journeys is a large wholesale account of Ugg,” Poser said. “Lids will benefit from the recent success of the Seattle Seahawks which was not in the company’s guidance. The Q4 same-store sales guidance for both Journeys and Lids was conservative. … We would be buyers of Genesco ahead of an expected earnings update prior to the ICR XChange conference on Jan. 11. Current valuation is compelling.”

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