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3 Footwear Retailers to Take Your Portfolio Higher
Posted by: Vinay Singh (IP Logged)
Date: April 19, 2014 10:08AM
Consumer confidence in the U.S. rose to 78.1 in December from 72 in the previous month. This is surely good news for retailers that have been suffering because of lower consumer demand as shoppers try to save every penny in their pockets. Hence, a prudent investor should be well prepared to invest in the right company, one that will maximize returns as the industry players prosper.
In the footwear-retail industry, players such as Nike (NKE), Wolverine World Wide (WWW), and Crocs (CROX) are quite interesting. These companies have been doing really well as evidenced by their quarterly results and stock-price performances. However, it is important to choose the best one among these, which will maximize investors' gains.
Performance so far...
Although all of these stocks have appreciated over the last year, Wolverine has been the best performer, with a return of 65.3% to investors. It is then followed by Nike, with a return of 50.1%, and Crocs at 11.4%.
Wolverine has indeed been a commendable performer and has been posting strong results, especially after its acquisition of Performance and Lifestyle Group from Collective Brands in 2012. Revenue for the last quarter increased 9% to $717 million over the previous year's quarter. The addition of Sperry Top-Sider, Stride Ride, and Keds helped Wolverine attract more customers, expanding its portfolio of products.
Moreover, the company did not limit its strategies to expansion only. Wolverine also increased its promotional efforts, entering into partnership with celebrities such as Taylor Swift in order to lure young customers. The footwear retailer continued to introduce new products and collections, which resonated with customers -- such as the M-Connect collection. By focusing more on high-margin products, Wolverine has also been able to expand its gross margin to 39.9%.
Nike's last quarter was also a blockbuster one, with an increase of 8% and 40% in the top and the bottom lines, respectively. Nike has been very active on the innovation front. Its efforts on new product development have always given customers a reason to purchase its products. Its Flyknit technology and new introductions such as Nike+ FuelBand and Fuel Band SE were key growth drivers.
Additionally, the footwear company has marketed its products well, and with sports events such as the FIFA World Cup 2014 and the Winter Olympics, Nike is expected to perform even better. Its bright outlook and growth in future orders make the company even more attractive.
However, Crocs seems to be unable to keep up with the pace of its peers despite a decent last quarter. Same-store sales growth of 9% and the addition of 15 new stores drove retail sales higher. Its wholesale and Internet revenue also moved north by 21% and 26%, respectively. The company has been making efforts such as adding local language websites in order to attract more customers.
Crocs is known for its colorful variety of products that are comfortable enough to lure customers. However, the company is witnessing weakness in Europe and decreasing demand in the American market. Revenue from Japan has also been declining. It is difficult to say how its new products such as the Shamaal collection, Boat Line, and Leigh will help in growing its business.
A look at some numbers...
Considering the P/E ratio, Crocs has the lowest multiple of 20 as compared to Nike and Wolverine, which have multiples of nearly 25 and and 21.9, respectively. However, Wolverine has the lowest forward P/E ratio at 10, whereas Nike and Crocs are at 22.3 and 17.4, respectively. The forward P/E multiple is much lower for Wolverine, which means that it is expected to grow much more in the future than the others. Hence, it will be more rewarding for investors.
Also, Wolverine World Wide has the lowest PEG ratio of 1.3 compared to 2.1 and 2 for that of Nike and Crocs, respectively. A lower PEG ratio shows that the company has higher growth prospects, giving substantial reasons to consider Wolverine as the best pick.
Consumer spending in U.S rose by 0.5% in November over the previous month. This shows that consumers are willing to open up their wallets, which should benefit footwear retailers. Hence, investing in the best company should prove to be rewarding.
Although both Wolverine and Nike have been good performers, the former outpaces the latter when it comes to valuation. Crocs, on the other hand, is taking measures to stage a comeback. However, it is better to wait for the right time, which is when Crocs shows a definite turnaround. Therefore, Wolverine should be the perfect pick since it has performed well, has given good returns to investors, has been strategizing well, and is expected to grow remarkably in the months to come.
Stocks Discussed: NKE, CROX, WWW,