What We Learned About Shoe Companies In Q1

Getting back on track has been the theme for many shoe firms in the first quarter of 2016 after a dismal holiday season, rife with heavy promotions and sluggish sales, pressured revenues in Q4.

Q1 was not really a quarter to ‘write home about’ per se for many, but the outlook for the rest of the year is brighter,” said B. Riley & Co. LLC analyst Jeff Van Sinderen. “Although retailers are still being cautious in their ordering — Q4 inflicted some painful wounds — as the inventory picture improves and companies begin to anniversary the easier comparisons later this year, we could see retailers shift into chase mode.”

Wolverine World Wide Inc. was among the firms that disappointed investors with a few misses in 2015. But last week, the company proved that its strategic initiatives — including brand reorganization, management changes and a pared-down brick-and-mortar presence — were beginning to yield positive results. The parent company of Stride Rite, Sperry, Saucony and other popular shoe brands beat market watchers’ sales-and-profit forecasts in Q1, posting revenues of $578 million and profit of $17.6 million.

Stride Rite store
Stride Rite store.
CREDIT: Courtesy of brand.

Similarly, Greensboro, N.C.-based VF Corp. missed market watchers’ estimates for sales and profit in Q4. But in its Q1 earnings release on April 29, VF showed that ongoing demand for many of its brands remained solid when it posted an 8 percent rise in its direct-to-consumer business as well as a low single-digit comp gain in Q1.

While there are better days ahead in the second half, some areas of VF’s business will remain under pressure, analysts caution, as the wholesale channel navigates through inventory carryover and FX headwinds persist.

Q2 will also be relatively lackluster as sales are expected to be flat and EPS down 13 percent, before sales and EPS reaccelerate in the second half,” Canaccord Genuity Inc. analyst Camilo Lyon wrote on April 29. “Despite rising challenges at retail, VF Corp. is managing through the morass well.”

Meanwhile, Skechers USA Inc. and Under Armour Inc. continued to dominate with earnings beats, as athletic remains seemingly footwear’s most stable category.

Skechers exceeded on most metrics and even their own retail stores comped strong, despite a difficult traffic backdrop,” Van Sinderen said.

In the athletic sector, red-hot momentum in Under Armour’s basketball shoe business, driven by the success of NBA star Stephen Curry’s signature shoe, helped the brand pull off its third consecutive billion-dollar quarter. Looking ahead, Sterne Agee CRT analyst Sam Poser and Citi Research analyst Kate McShane continue to dub the brand a top long-term growth pick for investors.

[Under Armour’s] 25 percent topline growth compound annual growth rate (CAGR) that they put out in September [remains] very achievable,” McShane said. “Driving that CAGR is international, footwear, white-space opportunity and comp growth.”

Matt Powell, a sports-industry analyst with The NPD Group Inc., said he continues to expect athletic footwear to be the shoe industry’s most robust category in Q2 and the second half.

Athletic footwear sales were up mid-single digits for Q1, driven by gains in units [while] the hot category for Q1 was classic running, which grew nearly 40 percent,” Powell said, referencing data collected by The NPD Group’s tracking system. “Every brand should be winning in this strong athletic market.”

Several hit sneaker releases, including its Ultra Boost running shoes and best-selling models such as the Stan Smith and the Superstar, helped Adidas hit its stride in Q1. The brand scored a 22 percent rise in revenues to 4.8 billion euros, or $5.3 billion, the highest quarterly revenue in the group’s history.

Adidas Ultra Boost 2016
The Adidas 2016 Ultra Boost for women.
CREDIT: Courtesy of brand.

Puma also displayed similar rebound potential in Q1 when it posted a 4 percent jump in profit. The firm was helped by its women’s business push led by buzz queens Rihanna and Kylie Jenner.

Even with healthy sales across most categories, Powell noted, retailers and brands have described softness in performance basketball, with hefty sales for Curry’s signature shoes being the exception and not the rule. Powell said he expects the basketball category to be challenged for the rest of the year.

On the fashion-footwear side, Steve Madden had stayed agile through much of a turbulent 2015 but made market watchers nervous in January when its Q4 earnings fell below analysts’ expectations. In Q1, however, Madden met analysts profit expectations and exceeded on sales.

Steve Madden delivered a solidly respectable quarter,” Van Sinderen said. “They have done an amazing job with their latest product line, which is selling through at top rates versus other brands.”

As more Q1 earnings roll in, Van Sinderen said he expects results to be mixed until macroeconomic challenges and company-specific issues taper off and growth accelerates in the second half.

 

(Editor’s Note: The original version of this story appeared in the May 9, 2016, issue of Footwear News).

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