Boots Are Still Kicking it in Retail

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Steven Madden is still one of the hottest shoe companies around, adroitly skirting the disasters that were Deckers Outdoor last year and Crocs over the last few years.

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Best foot forward
Steven Madden owns 117 stores, as well as three e-commerce sites. The other 85% of the business is wholesale direct-to-merchants like JW Nordstrom, Macy's, and Neiman Marcus.

Steven Madden reported third quarter results in October that included strong international performance of 25% net sales growth, with strength in China and Dubai. Overall net sales growth came in at 10.6% and net income growth at 16.1%. The very strong wholesale performance of Steven Madden branded footwear was also mentioned on the call.. Private label for mass merchants did better than expected, especially Mad Love, which is exclusive to Target.

CEO Ed Rosenfeld admitted that the company wasn't immune to a cautious consumer, with traffic down 3.5% at its branded retail stores. He added that the fourth quarter would be more promotional than anticipated in both retail and wholesale channels.

E-commerce sales were down modestly, but Rosenfeld announced a brand new e-commerce platform launching in January that features expedited shipping, 360 degree views, gift certificate functionality, and better integration with mobile phones, tablets, and social media.

These hiccups were mostly expected, and the stock closed up 5% after announcing earnings. Steven Madden's strength truly comes into play in the fourth quarter when its trendy and popular boots start selling well with holiday and cold weather catalysts.. This year there is also the added kicker that its large wholesale partner Macy's has moved the brand into its Impulse department. In fact, Macy's noted on its second quarter earnings call that it would be pushing boots aggressively this holiday season. Net wholesale footwear sales rose 19%.

Steven Madden is a five star CAPS rated stock I've recommended based on its popular namesake and Betsey Johnson brands, lack of debt, and multiple revenue streams. It exited the quarter with $234.7 million in cash and marketable securities.

Not a fad anymore
Deckers, on the other hand, has disappointed quarter after quarter, with declining sales and higher sheepskin costs. The company has several shoe lines: Ahnu, MOZO, TSUBO, and Hoka One One, but it is best known for its sheepskin boots, UGG Australia.

This time Deckers did not disappoint with third quarter earnings reported Oct. 24. Although EPS of  $0.95 was lower than the $1.18 of the year ago quarter, this wasn't nearly as bad as analysts feared, as they expected only $0.72. The better than expected news helped the stock surge 21%.

This fall, Deckers is going toe to toe against Steven Madden on fashion boots. Deckers is debuting a new twist on Uggs: tall leather boots with elevated price tags of $700 plus.. They look nothing like a typical UGG boot. Another twist on Uggs is that customers can customize their UGGs short boots and slippers in different colors.

SG&A expenses have risen from $40 million in 2009 to $112 million in 2013 and rose 20% in the third quarter. Capital spending at a ratio of 69.88% is much higher than the industry average of 10.98%.

Part of the bear argument on Deckers is that Uggs (and Crocs, as well) are a fad. Then again, CEO Angel Martinez sai, "Approximately 80% of women in the U.S. are aware of the brand, over 40% have considered buying the brand, and 25% have purchased the brand."

The company reported strong global e-commerce sales growth (ex-China) of 21%, but net sales growth came in at only 2.7%.

Crocs takes a beating
Crocs' stock surged to the high $70's in 2007, only to crash to $1.04 in November 2008.. Since then, Crocs has been branching out from its non-stink clogs to boots, flats, wedges, and athletic shoes for men, women, and children in its goal of becoming a four season brand. Unfortunately, wholesale customers in the Americas and Japan have been cutting orders due to a cautious consumer.

Crocs shares sunk after third quarter earnings, beating by a penny on EPS but missing on revenue. Net income fell 71% year over year, and the company guided for a bigger loss than expected in the fourth quarter. This followed a sharp drop after July's second quarter earnings.Going forward, Crocs hopes Asia Pacific and Europe will continue to take up the slack that is the American and Japanese consumer.

At a trailing earnings multiple around 10 the stock is the cheapest of these choices. That said, two consecutive disappointing quarters and lowered guidance when Deckers and Steven Madden are executing well in what is arguably a weak retail environment makes Crocs a company to avoid.

The Foolish takeaway
Steven Madden is a popular brand with retail partners that are supporting sales, and I like its e-commerce platform news. Deckers may really be in the turnaround it has promised for so long. Crocs is still underperforming when these rivals are performing well. Just look at the chart above and decide whether you prefer that smooth and steady climb of Steven Madden or the gut-renching ride of its rivals.

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The article Boots Are Still Kicking it in Retail originally appeared on

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool owns shares of Crocs. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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