Sector financial performance:

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

There is an apparent downward pressure on US market sales of companies in this sector as indicated by their domestic wholesales. As we see from our data, the average growth in sales (US market mainly) has been weak (growth rate at 0% and -5% in 2017 and 2016) compared with 6% growth in 2015, which is consistent with situation in the whole retail industry of US market. The decrease has been reflected in decrease in sales volumes while reduced largely selling price (in most of cases) from both companies’ wholesales, as a result of decrease in demand from their retail customer such as department stores, and companies’ own retail. The decrease in domestic market seems to have been offset partially by strong growth in the international market as indicated by an average 20% annual growth in wholesale of international market during the same period.

Sales seem to be rebounding since the second half of 2017 and continued into 2018 as indicated by an average 3% growth in 2018 for those companies’ wholesale in US market. Data indicates that sales volume seems to be sensitive to reduction in price, which may mean that demand is getting stronger, especially from online purchasers.

Before 2017, when companies generally used method of lowering price to boost decreasing sales, it seems demand for footwear was weak but did not go away as indicated by the relatively strong economy elastic of price. Therefore, due to sales’ rebound quickly after promotion and markdowns the average selling price did not go too deep. Plus, strong performance of some companies in international market, which have higher gross margin, helped these companies to keep gross margins uncontaminated. However, the SG&A as percentage of sales increased for most of companies as a result of currency and store closure’ impacts and thus companies’ operating margins decreased slightly. However, after entering 2017 due to strong demand online and stronger economy elastic of price, sales (volume) rebounded quickly and improved largely margin of companies in this sector.

The current average gross margin is 47% in this sector (depreciation and store costs excluded) with an average SG&A as percentage of sale of 38%. And this makes an average operating margin of about 9%.

According our analysis, companies’ enterprise price/EBI ratios are average 23with interest/EBI ratios of 4%. 

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Company performance:

The demand for this company’s footwear seems to have been decreasing in the past four years as indicated by the negative growths in its sales (0%, -7%, -6%, and -7.5%) in the past four years.

The first six month of fiscal 2018 compared with the same period of 2017(20180630)

Organic sales decreased about 7.5% (5.3% for 2Q) primarily attributable to retail store closures and licensing of some brand.

The fiscal 2017 compared 2016

Organic sales decreased about 5.8% primarily attributable to retail store closures and licensing of some brand.

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

Organic sales decreased about 0.2% primarily attributable to retail store closures.

Fiscal 2016 compared with 2015

Net sales decreased about 7% primarily attributable to lower demand and retail stores closures.

Fiscal 2015 compared with 2014

Growth in net sales is flat primarily attributable to higher demand offset by retail stores closures.

This company’ gross margin was about 39% down slightly from about 39.4% of 2014 due to currency impacts and store closure. Decreased gross margin, working together with slightly increased SG&A as percentage of sales, dragged its operating margin down to below 9% in 2017. However, as sales shifted to higher margin products, its gross margin was improved to about 40.5% in 2018 and thus caused its operating margin back above 10% 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 considering that its recent much worse performance in sales than its peers.

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