Sector financial performance:

This company, who primarily designs, sources, markets, and distributes lifestyle-active& casual footwear for women and as well for men and children mainly through wholesale and as well through retail/ecommerce sites, has been grouped into women lifestyle footwear (wholesale/retail) sector in footwear industry.

The downward pressure on demand from companies’ retail customers in this sector seems to be mitigated in the past two years as indicated by the increase in the wholesale sales, which presents 6% and 5% increase for 2017 and 2018 compared with 2% and 6% decrease in 2016 and 2015. Other proofs indicating that demand has been stronger are that companies have been able to raise price or reduce markdowns and keep the increase in sales simultaneously.

Due to fewer markdowns, companies’ gross margins get improved presenting a typical gross margin of 37%, SG&A as percentage of sales of 27%, and an operating margin of 11%.

According our analysis, companies’ enterprise price/EBI ratios is 29 without debt.   

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Company performance:

After two years’ decline in its footwear wholesales, we see an increase of 6% and 5.4% from this segment for 2017 and 2018 so far. At the same time, as indicated by comparable stores sales its retail sales decreased in 2017 after two years’ increase but the growth came back above zero in 2018. This discrepancy between performance from its wholesale and retail may result from the different performance in traffic between its customers’ stores such as department stores and mall-based stores and these companies’ own stores.

The first six months of fiscal 2018 compared with 2017

Net sales increased about 6% primarily attributable to increase in footwear wholesale (increased 5.4%).  The increase in footwear wholesales primarily come from increase in its core women’s footwear brands sales. The same store sales of retail increased 0.4%.

The fiscal 2017 compared with 2016

Net sales (excluding acquisition) increased about 5% primarily attributable to increase in footwear wholesale (increased 6%, organic) offset by decrease of about 3% in same store sales of retail.

The increase in footwear wholesales primarily come from increase in its core women’s footwear brands sales.

Growth in comparable stores sales (retail): -2.3%

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

Net sales increased 11% primarily attributable to increase in footwear wholesale (increased 7%, organic) and increase in handbag wholesale.

The increase in footwear wholesales primarily come from increase in its core women’s footwear brands sales.

Growth in comparable stores sales (retail): -2.3%

Fiscal 2016 compared with 2015

Net sales decreased about 0.4% primarily attributable to decrease in footwear wholesale (decreased about 2%).

Growth in comparable stores sales (retail): 4%

Fiscal 2015 compared with 2014

Net sales increased about 5.3% primarily attributable to acquisition. The organic footwear wholesale decreased 6.4% offset by increase in handbag wholesale.

Growth in comparable stores sales (retail): 11%.

As the pace of decrease in sales slows down, this company has been able to raise products’ price/reduce markdown and thus its gross margin has increased by about 230 basis points since 2014 to above 37% of fiscal 2018. Increased gross margin, offset by increased SG&A as percentage of sales as a result of increased expenses and expansion of stores, dragged down its operating margin to 11% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 29. We think that its stock is being relatively slightly overvalued while its increasing wholesale sales and potential improvement in its SG&A spending.