Sector financial performance:

This company, who is primarily retailer of dress, casual and sports footwear for men, women, and children with third party brands, has been grouped in family footwear retailer sector of footwear industry.

Between 2015 and 2017, while it seems that the performance of new opening stores in terms of sales and profitability is at the average level of the companies, the slowing down comparable store sales caused concerns that the footwear that has been sold by companies in this sector may be relatively vulnerable to slowing down traffic.

According to data of a typical company in this sector, it seems that comparable store sales rebounded after entering 2017 and presented a 4% growth in the first half of 2018.

Under the downward pressure of sales, companies had to face increased deleverage of expenses and some of companies’ gross margins thus shrank between 2015 and 2017. The typical gross margin was about 29% (including distribution and occupancy costs) with SG&A as percentage of sales of about 25%. The typical operating margin was around 4% (12 months trailing data).

As sales jumped and markdowns reduced, gross margin was improved to about 30% (including distribution and occupancy costs) with SG&A as percentage of sales of about 25%. The typical operating margin is around 5% (12 months trailing data of 20180630).

According to our analysis, the current companies’ enterprise price/EBI ratio is around 20 with interest/EBI ratio of 0%.

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Company performance:

The growth in comparable store sales seems to be slowing down between 2015 and 2017 as indicated by growth number: 3%, 0.5%, and 0.3% for 2015, 2016, and 2017 respectively.

Sales depend on expansion in new stores opening.

The growth in comparable store sales seems to go up since 2017as indicated by 0.3% and 4% growth for 2017 and 2018 so far.

The first half of fiscal 2018 compared with same period of 2017(ended 20180803)

Net sales increased about 7.6% (14% for 2Q) attributable to new opened stores, extra week, and increase of 4% (6.7% for 2Q) in comparable stores sales.

The fiscal 2017 compared with 2016(ended 20180203)

Net sales increased about 1.8% attributable to new opened stores and increase of 0.3% in comparable stores sales.

The first nine months of fiscal 2017 compared with the same period of 2016

Net sales increased about 1.2%.  Comparable stores sales increased about 0.4%.

Fiscal 2016 compared with 2015

Net sales increased about 1.7% primarily attributable to new store opening. Comparable stores sales increased about 0.5%.

Fiscal 2015 compared with 2014

Net sales increased about 4.7% primarily attributable to increase of 3% in comparable stores sale.

Its gross margin (including distribution and occupancy costs) has decreased slightly since 2014 as a combined result of decreased merchandise margin (increased expenses of sales) and decreased expenses as percentage of sales. In addition to about 50 basis points decrease in SG&A as percentage of sales, this company’s operating margin went down to 3.6% in 2017 from 4.4% in 2014.

Its gross margin (including distribution and occupancy costs) went up by 100 basis points to about 30% currently since 2017 primarily as a result of improved merchandise margin and leverage of occupancy with higher sales. In addition to flat SG&A as percentage of sales, this company’s operating margin went up to about 5% from about 4% in 2017.

Stock price

This stock currently has an enterprise price/EBI ratio of 20. We think that its stock is being relatively slightly overvalued considering its relatively higher ratio and the uncertainty of growth in its comparable store sales.