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. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

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!