U.S. Shoe May Be Hot To Trot

Want a glaring example of a hot takeover stock that turned to ice? Try U. S. Shoe. Trading as high as 35 in 1987 and 26 last summer, the stock has plummeted to 9 after bitterly disappointing just about everyone on the Street not only on the takeover front but also on plans to sell major divisions. Now, just as the buyout bettors have fled the stock, the smart-money crowd is beginning to move in.

"For a company with sales of some $2.5 billion in 1990 and a book value of $12.35 a share, U. S. Shoe is a steal at the stock's depressed price," says investment manager Mark Boyar, who has been accumulating shares. He's also impressed with the issue's 5.5% yield and cash flow of $2.50 a share. Boyar figures that with U. S. Shoe's line of well-known consumer-products brands, the company is worth $30 a share, based on the intrinsic value of its assets. The maker and importer of shoes also operates 1,782 women's specialty-retail outlets, located mainly in shopping malls; 533 shoe stores; and 430 LensCrafters Optical stores.

WHAT SLUMP? U. S. Shoe's shares are reeling from a triple whammy. Never mind that the company failed to satisfy talk that it was going to do a merger deal with an unidentified suitor. What frustrated shareholders even more was the company's scuttling of last year's plans to sell the shoe division for $400 million. Expectations had also run high that it would sell LensCrafters. That didn't materialize, either. Then, the economic slump pulled down earnings and crimped overall sales.

But a big earnings boost is expected by the end of 1991, partly from the company's women's-apparel unit, whose earnings advanced by nearly 10% last year. Those operations account for 40% of net income. U. S. Shoe is expected to open more apparel stores this year, including 40 to 45 new Petite Sophisticate outlets and 20 to 25 Casual Corner stores.

Value Line sees earnings rising to $1.60 a share in 1991 from $1.40 in `90. One big investor says that should start attracting institutional money again.

Last year's big disappointment was the hitherto fast-growing LensCrafters, whose earnings declined because of a weakened optical market. LensCrafters accounts for 37% of U. S. Shoe's profits.

Boyar notes that the company has traditionally traded in the 20s. Now, with the "fat in the stock already stripped out," he thinks it will attract raiders again or lure serious new merger suitors.

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