Retail Analyst: Foot Locker, Skechers And Steve Madden Poised To Run Higher

Shoes are a new must-have for Buckingham Research. The firm initiated coverage on five companies Wednesday with bullish to neutral sentiment across manufacturers and distributors.

Foot Locker: Buy, $54

Foot Locker, Inc. FL is seen to have the most upside potential (28 percent) of the covered group.

“While current trends are mixed and FL's fundamentals will likely remain under pressure through spring (still clearing through excess inventory), we see upside to sales and margin expansion as FL begins to lap product headwinds/markdown pressures,” analyst Eric Tracy wrote in a note.

Second-quarter comps could accelerate on improved product offerings by key vendors, including strategic partner Nike Inc NKE, and Foot Locker is expected to recapture margins on full-priced sales.

Steve Madden: Buy, $53

As Tracy sees it, Steven Madden, Ltd. SHOO is “the premium company in fashion footwear.”

International expansion and e-commerce inflection are seen to drive mid-single-digit revenue growth, and margin improvements provide potential for better fixed-cost leverage. At the same time, solid free cash flow supports a stable capital allocation strategy.

Skechers: Buy, $48

Tracy anticipates improving U.S. trends and international expansion to drive positive three-year revenue growth at Skechers USA Inc SKX.

“We believe underlying dynamics of SKX's business remain solid based on strong product offering and improved brand recognition, unique global white space opportunity and favorable industry trends for fashion athletic and casual footwear,” he wrote, noting Sketchers is growing faster than or as fast as any brand of comparable size.

Deckers: Neutral, $95

With a premium valuation, “likely” moderating revenue growth, healthy free cash flow and an evolving direct-to-consumer platform that drives profitability, Deckers Outdoor Corp DECK is seen to have a balanced risk-reward.

Wolverine World Wide: Neutral, $32

Wolverine World Wide, Inc. WWW is prioritizing operating margin expansion and profit improvements but may encounter difficulty growing revenue this year.

“While we are encouraged by WWW’s operational discipline throughout its restructuring phase, visibility remains less certain on revenue acceleration as management invests in its global growth agenda (focused on digital, international),” Tracy wrote.

It’s expected to record strong momentum at Merrell and a Sperry sales inflection in the back half of the year.