NIKE, Inc. (NKE), Wolverine World Wide, Inc. (WWW): This Footwear Company Remains a Bargain Despite the Industry’s Recent Surge

Page 1 of 2

American consumer confidence rose to a five-year high in May according to the Conference Board’s Consumer Confidence Index. A soaring stock market and growing strength in the housing industry has Americans feeling wealthier and more willing to return to their historical consumerism despite intractable unemployment figures.

With Americans reporting renewed confidence in the economy, the stocks of many of the corporations who thrive on American consumerism have surged. One industry that stakes a strong claim to Americans’ discretionary spending and has correspondingly outperformed the stock market in recent months is the footwear industry.

Specifically, stocks of footwear industry-leaders NIKE, Inc. (NYSE:NKE)Wolverine World Wide, Inc. (NYSE:WWW), and Deckers Outdoor Corp (NASDAQ:DECK) have performed impressively in the past six months.

Nike offers stable revenue

NIKE Inc. (NKE)With a market capitalization of $56 billion, NIKE, Inc. (NYSE:NKE) is the largest and the most prominent company in the footwear industry. Through endorsements of star athletes, including the iconic Michael Jordan, NIKE, Inc. (NYSE:NKE) has developed brand recognition that has enabled it to venture beyond footwear and into general apparel, sports equipment, and fashion.

Unlike its competitors Wolverine World Wide, Inc. (NYSE:WWW) and Deckers Outdoor Corp (NASDAQ:DECK), NIKE, Inc. (NYSE:NKE)’s future growth is likely to be driven by non-footwear revenue. Q1 2013 displayed the extent to which this is true. While footwear accounted for 65% of the company’s Q1 2013 North American revenue, the company’s overall 20% year on year increase in North American revenue was driven mostly by success in the apparel and sports equipment industries.

NIKE, Inc. (NYSE:NKE)’s North American footwear sales increased 16%, while apparel sales increased 22% and equipment sales jumped 51%. Nike’s success in the apparel and sports equipment markets provides the company with a decided advantage over its footwear competitors, as the company draws upon a more diverse (and therefore more stable) set of revenue streams than Wolverine World Wide, Inc. (NYSE:WWW) and Deckers.

Reflecting market confidence in the strength of the footwear industry and in Nike’s uniquely diversified revenue stream, Nike’s stock price has increased 30% in the past six months.

Wolverine’s aggressive acquisition-fueled growth

The second-largest of the U.S. footwear companies, though only a small fraction of Nike’s size, is Wolverine World Wide, Inc. (NYSE:WWW). With a market capitalization of slightly over $2.5 billion, Wolverine World Wide, Inc. (NYSE:WWW) is a conglomeration of various brands, including Merrell, Hush Puppies, and Patagonia. Wolverine recently added to its list of brands through the 2012 acquisition of Collective Brands’ Performance & Lifestyle Group, the parent company of the recognizable Saucony and Keds brands.

The Collective Brands acquisition led to a massive 100% increase in revenue in Q1 2013, though it also resulted in a significant increase in Wolverine’s long-term debt, which now stands at over $1.2 billion. Analysts have viewed the acquisition as a strategic coup for Wolverine: it expanded the company’s retail distribution capacities; substantially increased the company’s presence in the children’s and athletic footwear markets; and created new efficiencies in Wolverine’s international sourcing and distribution networks.

However, with long-term debt now standing at 65% of market capitalization and significant interest payments due on the debt accumulated to finance the Collective Brands acquisition, the company’s long-term profitability is far from assured.

To this point, the market has reviewed the acquisition favorably; in the past six months the company’s stock has kept pace with Nike’s and increased 30%. Further, the market appears to currently believe in the company’s ability to generate revenue growth as it trades at a price to earnings ratio of 33 compared to Nike’s 24.

A strong UGG brand creates value in Deckers

The smallest of these three footwear companies is Deckers, which controls various brands, including Teva, and most importantly, UGG, which accounted for 84% of Deckers’ 2012 sales. Deckers has seen the most sizable stock boost of these three companies in recent months, increasing in value by 50% from December 2012 lows.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!