Sector financial performance:
This company, who is primarily a retailer of sport shoes and as well apparel, has been grouped into sport footwear retailer sector of footwear industry.
The average growth in comparable sales of typical retailers in this sector started to decline from 5% growth to 3% decline 2017 due to large decrease in in-store sales and slowing growth in ecommerce. Further promotion seems to be helping slow down declining in-store sales and as well improve growth in e-commerce in 2018 and we thus see 1.2% decrease in comparable sales in the first half of 2018.
Companies, who first felt pressure on decreasing traffic and sales in the past several years, had to lower price to maintain sales. It seems, as indicated by some companies’ decreased gross margins, most of the lost profits resulted from markdowns and promotions have to be absorbed by those retailers. The current average gross margin of typical retailers is about 29% (including distribution and occupancy costs ) with SG&A as percentage of sales ranging 20%, which caused operating margin down to about 9% in 2018(12 months trailing data).
According to our analysis, the current companies’ enterprise price/EBI ratio is 11without debt.
The growth in comparable sales turned into negative number after entering 2017 compared with high single digit number year before that year due to decline in store sales, which had been increasing since 2015, and also slowing down growth in ecommerce, which had kept strong in the prior years. As slowing down decrease in comparable store sales in 2018 and e-commerce growth went back on track due probably to promotions, comparable sales of this company seems to be turning back above zero in 2018.
The first 26 weeks of fiscal 2018 compared with same period of 2017
Net sales (excluding currency) increased about 0.9% (up 3.9% for 2Q). Comparable sales (including e-commerce) decreased 1.2% (up 0.5% for 2Q).
The fiscal 2017 compared with 2016
Net sales (excluding currency) decreased about 0.5% primarily due to decrease in comparable sales (including e-commerce) of about 3%.
The first nine months of fiscal 2017 compared with the same period of 2016
Net sales decreased about 1.5% primarily due to decrease in comparable stores sales (including e-commerce) of about 3% offset by increase in ecommerce.
Fiscal 2016 compared with 2015
Net organic sales (excluding currency impacts) increased about 5.2% primarily due to increase in comparable stores sales of about 4.3% and increase in ecommerce.
Fiscal 2015 compared with 2014
Net organic sales increased about 8.9% primarily due to increase in comparable stores sales of about 8.5% and increase in ecommerce.
Its gross margin (including distribution, depreciation and occupancy costs) has decreased by about 130 basis points since 2014 to 30% of fiscal 2017(trailing 12 months) primarily due to deleveraging of decreased sales. However, because the decrease in gross margin has been offset by improved SG&A as percentage of sales as a result of cost-saving efforts of this company’s operating margin went down slightly to about 11% in 2017. Gross margin continued to decline to 29% in 2018 as promotion continues and deleverage of occupancy costs as a result of decreased sales. With high SG&A% as declining sales, we see operating margin down to about 9.5% in 2018.
This stock currently has an enterprise price/EBI ratio of 11. We think that its stock is being relatively fairly valued considering uncertainty in sales.