Sector financial performance:

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

There was an apparent downward pressure on US market sales of companies in this sector as indicated by their wholesales sales data (an average 5-9% decrease in 2016/2017 compared with 3% increase in 2015), which is consistent with slowing down foot traffic from their retail customers, especially from department stores. In addition, due to the increasing production costs of supplier and manufacturers from China, those companies in this sector also face pressure of raising supply price and their ability to adjust price to deal with slowing down traffic has been limited. This is why we see the typical gross margin has no changes and the SG&A as percentage of sales increased as the sales went down during the same period between 2016 and 2017.

As companies’ wholesale rebounded after entering 2018, a change consistent with increasing strong consumers’ demand all across clothing and footwear industry, companies’ gross margin is being improved.

The typical gross margin is about 40% in this sector (depreciation and distribution costs excluded) with a SG&A as percentage of sale of about 31%. And this makes an average operating margin of about 8%.

According our analysis, companies’ enterprise price/EBI ratios are average 23 with interest/EBI ratios of 1%.

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Company performance:

The demand for this company’s footwear from its retail customers, especially from mid-tired department stores decreased in 2016/17as indicated by decrease in its wholesales (down by 4% and 9% for 2017 and 2016 respectively). However, the wholesale sales seem to be rebounding in 2018 (up 5% so far). Its own store retail has experienced decrease during the same period and growth in online sales has given help but not enough.

The first half of fiscal 2018 compared with 2017(ended 20180630)

Net sales increased 3% (6% for 2Q) primarily attributable to increase in wholesale (up 5%, 8% for 2Q) offset by decrease in retail (down 1%, 3% for 2Q).

The fiscal 2017 compared with 2016

Net sales decreased 4% primarily attributable to decrease in wholesale (down 5%) and decrease in retail (down 5%) from online sales.

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

Net sales decreased 5% primarily attributable to decrease in wholesale (down 6%) and to lesser extent to decrease in retail (down 4%).

Fiscal 2016 compared with 2015

Net sales decreased 7% primarily attributable to decrease in wholesale (down 9%) and to lesser extent to decrease in retail (down 1%).

Fiscal 2015 compared with 2014

Net sales are flat attributable to increase in wholesale (3%) offset by decrease in retail (down 5%).

This company’ gross margin was about 38% in 2017 presenting no changes as in 2014 (depreciation and distribution costs excluded). Increased SG&A as percentage of sales, probably as a result of decrease in sales, dragged down its operating margin to about 7% in 2017. However, as sales increased and gross margin was improved (about 40%) in 2018, while more spending on SG&A, its operating margin back above 8%.

Stock price

This stock currently has an enterprise price/EBI ratio of 23. We think that its stock is being relatively slightly overvalued considering uncertainty in wholesale increase and as well the rising product costs of its suppliers and wholesale price.