13 Jun Nike, Wolverine World Wide and Deckers Stock Outperforming Market
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, stock of footwear industry-leaders Nike Inc (NYSE: NKE), Wolverine World Wide (NYSE: WWW) and Deckers Outdoor Corp (NASDAQ: DECK) has performed impressively in the past six months.
Nike is the largest and most prominent company in the footwear industry. Through endorsements of star athletes, including the iconic Michael Jordan, Nike has developed brand recognition that has enabled it to venture beyond footwear and into general apparel, sports equipment and fashion. Thanks to its footwear dominance and its diversification into other related industries, Nike has grown to a market capitalization of over $56 billion. In a strong Q1 2013 Nike footwear accounted for roughly 65% of the company’s North American revenues, which increased by 20% over the previous year. With robust revenue growth, increasing profitability due in part to tax policy adjustments and a sizeable share repurchase program, Nike’s stock has significantly outperformed the Dow Jones Industrial Average in the past six months, increasing by close to 30% compared to the Dow’s 15% increase.
The second largest of the US footwear leaders, though only a small fraction of Nike’s size, is Wolverine. With a market capitalization of slightly over $2.5 billion, Wolverine 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 acquisition led to a massive 100% increase in revenue in Q1 2013, though it also resulted in a significant increase in the company’s long-term debt, which now stands at over $1.2 billion and makes up a far greater proportion of the company’s market capitalization than the debt of either Nike or Deckers. The market appears to have reviewed the acquisition favourably, as in the past six months the company’s stock has kept pace with Nike’s and increased by 30%. Further, the market appears to believe in the company’s ability to generate future revenue growth, as it trades at a price to earnings ratio of 33 compared to Nike’s 24.
The smallest of these three footwear companies is Deckers, who controls various brands, including Teva and, most importantly, UGG, which accounted for 84% of Deckers’ 2012 sales. Deckers has seen the most sizeable stock boost of these three companies in recent months, increasing in value by 50% from December 2012 lows. Various factors have converged to account for Deckers’ recent success: a decline in sheepskin prices has increased the profitability of UGG products; a far colder winter than last year drove demand for warm UGG boots; buyout rumours that Deckers may be acquired by either private equity firms or rival footwear company VF Corporation drove the stock price up on speculation; and immense popularity of UGG products in 2012 online Christmas shopping boosted analysts’ evaluations of the company. Notwithstanding the recent rise in its stock price, with a price to earnings ratio of 16, Deckers still trades at a significant discount to its competitors. This discount reflects uncertainty regarding the marketability of UGG products, which have sold erratically in the recent past. For example, in 2012 Deckers stock fell precipitously as UGG sales declined sharply in an unusually warm winter.