Fancy Footwork at Skechers and Brown

Strong demand for fashion footwear has given both outfits a big lift -- and they're not the only ones stepping lively

Step aside, Nike (NKE). Investors lately have been kicking up their heels with some lesser-known footwear names. In mid-February, stocks of the hip shoe outfit Skechers U.S.A.(SKX) and the relatively staid Brown Shoe Co. (BWS) hit 52-week highs. As with many consumer goods outfits, the stocks began their ascent in early November, following a post-Katrina slump.

But analysts say Brown and Skechers are not simply coasting along with a strong industry. Each appears to be in sync with consumer tastes. In other words, they're in fashion. And Brown and Skechers both have reason to be optimistic about the remainder of 2006, as long as they can anticipate changing tastes.

Marshal Cohen, chief industry analyst at market researcher NPD Group, says Brown and Skechers benefited from fashion footwear sales climbing 11.3% in 2005, vs. paltry 2.5% growth for "performance" athletic shoes.


  O.K., why did this happen? After all, people still play sports. The answer is tough to pin down. In 2005, footwear "became a signature item," Cohen says. "This year was the year that everybody -- and I mean everybody -- looked at their shoes." Cohen couldn't identify a particular event that sparked a run on fancy footwear.

Cohen predicts that in the next year the growth rate for dressy shoes will cool to a still-respectable 5%-6%, while accessories such as leather goods from Coach (COH) will become the must-have items of 2006.

The footwear outfits may possess a valuable quality in today's tricky consumer environment: pricing power. NPD's Cohen says the average retail price of shoes jumped about $1 per pair in 2005.Of course, even with the higher prices, people still need to buy 'em. In February, Skechers said it anticipates reporting net sales of just over $1 billion for 2005, up from $920.3 million in 2004.


  On Feb. 14, Skechers stock touched $20.47, up 83% from its 52-week low May 13. The next day investment bank Brean Murray, Carret & Co. (which states that it intends to pursue business relationships with the companies in its coverage universe) published a note that said the company's offerings should continue to thrive in the 2006 fashion climate.

Brean thinks consumer preferences will shift to sandals and thick-soled shoes for "the young woman who desires height." With this in mind, Brean maintained its strong buy rating for the company and raised its price target to $24 per share, from $20.

Acknowledging that there are "lot of ebbs and flows" in the fickle fashion industry, Cohen said Manhattan Beach (Calif.)-based Skechers has benefited from selling shoes that have "athletic looks but are not true performance brands," a popular style last year that Cohen says also performed well for Nine West, part of Jones Apparel (JNY) and Adidas. In addition to its flagship Skechers brand, it licenses product lines from companies such as street-wear outfit Marc Ecko Enterprises.

Skechers aggressively markets to teenagers, and young adults, but St. Louis-based Brown Shoe has pleased its investors by growing into a very different type of footwear company. Marketing several brands, Cohen says it has made notable gains selling footwear to consumers 35 and older.


  "If you were to ask any consumer, 'have you ever heard of Brown Shoe?' the answer is no. But they've heard of their brands," Cohen said. These include Naturalizer, which a Brean Murray note says "captures the prevailing fashion trends for fall 2006, which include tailored, Victorian, and distressed looks."

As with Skechers, Brean is bullish on Brown Shoe, rating it a strong buy. This week the firm hiked its price target for Brown to $49, from $47. Since Oct. 12, when the stock dropped to a 52-week low of $29.64, it has climbed to $47.19 on Feb. 15, a gain of about 59%.

Most of Brown's business comes from its Famous Footwear brand, a chain of more than 900 shoe stores operating in all 50 states. (The stores sell Skechers, as does the Brown online retailer As a whole, Brown's projected 2005 revenue is about $2.3 billion, up from $1.94 billion in 2004. The acquisition of Bennett Footwear Group in April, 2005, adds $200 million in revenues for the year.


  The Brean note says the Bennett acquisition will be a crucial element of future growth, as the firm believes that it will increase's Brown's access to more affluent customers. According to a December report, Bennett's Via Spiga shoes have an average retail price of $179.99, vs. $59.99 for Naturalizers. The brand also has a handful of stores, a presence Brean feels could be increased.

As a more diversified company, Brown might be less susceptible than Skechers to rapid changes in taste, but both outfits face plenty of competition. Pushing their stock prices past current levels may require some big strides.

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