This Sector Took 2 Steps Forward as the Market Fell

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The market was pretty unforgiving last week, shelling stocks indiscriminately from energy to health care, and technology to retail. Still, there was one sector that proved to be largely resilient to the move lower, and here's the shocker: It wasn't the conglomerates.

The sector in question that put one foot before the other and marched higher in light of resounding weakness was footwear retailers.

Shoes have been an unforeseen bright spot in the market for quite some time, but their real strength came to fruition on Friday when we received very positive news from both Foot Locker (NYS: FL) and Brown Shoe (NYS: BWS) .


For the quarter, Foot Locker's same-store sales for locations open at least one year rose 9.7% as net income jumped 36% higher to $0.83 per share -- a new first-quarter record. The keys to Foot Locker's success remain tight administrating costs, which rose just 2.7%, and strong international growth, as was evidenced by rapid same-store sales growth.

Perhaps the biggest surprise was Brown Shoe, which sells moderately priced footwear predominantly through its Famous Footwear locations. The company's results weren't expected to be particularly good given that it's only halfway through a turnaround plan that involves cutting costs and refreshing its product line for consumers. Apparently, that plan is working better than anyone had dreamed.

In Brown Shoe's first quarter, the company crushed Wall Street's expectations by producing a 2.5% same-store sales rise with EPS of $0.23 (excluding one-time items) -- more than double the $0.09 consensus. Even better, Brown Shoe upped its full-year EPS forecast to $0.83-$0.95 from $0.78-$0.92.

Since Foot Locker and Brown Shoe are mall-based retailers, it's worth noting that the majority of their strength is likely coming at the expense of the larger, mall-anchor stores. J.C. Penney (NYS: JCP) and Sears Holdings (NAS: SHLD) are two names that come to mind that are in the early stages of enacting a companywide turnaround process. With both focused solely on the cost-cutting phase of their turnaround, it's not a reach to assume that Foot Locker and Brown Shoe have side-stepped these competitors and taken footwear market share from them.

It's also worth noting that strength from shoe manufacturing giant Nike (NYS: NKE) is continuing to fuel optimism among footwear retailers while it metaphorically runs all over its competition. Although it's been two months since Nike last reported its results, it did note an 11% rise in earnings, and more importantly, a 15% jump in future orders in that recent quarter.

That's just one of the reasons Nike was named one of the three American companies our team at Stock Advisor feels could rake in big profits in the emerging markets. You can click here to read more about why it was picked, and about the other two companies set to dominate the world.

Agree? Disagree? Suddenly want to go shoe shopping? Tell me and your fellow Fools about it in the comment section below!

At the time this article was published Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. Shoe shopping is his ultimate kryptonite. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of, and creating a diagonal call position in, Nike. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy that always puts one foot forward.

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