Investing in shoes is a surefire way to help protect your portfolio in the event of a recession. The following shoe companies all appear to be in for growth in the coming years. With the upcoming back-to-school buying season still weeks away, now could be your time to get in before prices potentially rise leading up to the shopping season.
Foot Locker, Inc. (NYSE:FL), Nike Inc (NYSE:NKE), and Brown Shoe Company, Inc. (NYSE:BWS) are all positioning themselves to make major profits, whether that is by refining global operations or by positioning themselves better for the domestic consumer market.
Having the shoe on the right foot
One of the most impressive features about Foot Locker, Inc. (NYSE:FL) is the store’s margins. The gross margin at the company averaged 42.6% over the last five years, with operating margin averaging 5.8%, and net margin averaging 2.8%. Over approximately the last 12 months, gross margin was at 44%.
Foot Locker, Inc. (NYSE:FL) looks to continue growth. Recently, it was given approval to acquire an athletic retailer in Germany for $95 million.
Analysts’ consensus estimates are for Foot Locker, Inc. (NYSE:FL) to grow its revenue by $200 million this year, which is the same as the guidance given in the company’s first-quarter earnings report. Furthermore, in the first quarter, the company grew the Kids Foot Locker, Inc. (NYSE:FL) brand by 20% compared to last year’s first quarter. The kids segment’s success is important, especially if the company wants to replace the basketball sneaker segment, a business division Morningstar says is dying.
Foot Locker, Inc. (NYSE:FL) does suffer from the problem of having many stores in malls, where foot traffic is decreasing. The company started offering exclusively athletic footwear around four decades ago, at a time when malls were gaining popularity. Despite a turnaround to the economy, foot traffic in malls decreased 6.4% in February from the year-ago period, according to ShopperTrak.
That should concern Foot Locker, but it isn’t enough for me to not love this stock. The company has shown its innovative capabilities in the past, and it will do so again.
Nike Inc (NYSE:NKE) isn’t just doing it in the U.S.
Like with many major retailers, Nike Inc (NYSE:NKE) is looking to China for expansion. The growing middle class there represents a major opportunity for profits in a market that isn’t over-saturated with retail companies. While the company isn’t increasing profits from China yet, it reported flat sales last quarter after sales fell 8% in the previous quarter.
The picture grows brighter for Nike Inc (NYSE:NKE) considering that next year features the Winter Olympics and the World Cup. This is an important time for growing the brand by sponsorship and other advertisements. With about $6 billion in short-term investments and cash available, Nike Inc (NYSE:NKE) is well positioned to take advantage of that opportunity.
Brown Shoe Company, Inc. (NYSE:BWS) is walking steady
Brown Shoe Company, Inc. (NYSE:BWS) has shown in the last 12 months that it is a decent company to own. The company’s gross margin over that period was more than 39%. However, that is 10 basis points below the five-year average. But with earnings expected to be on the rise by year-end, the company is looking more attractive.
This year, it expects consolidated net sales between $2.5 billion and $2.6 billion. Earnings per diluted share are expected to be between $0.63 and $0.70. Also, the recently adjusted EPS guidance is between $1.22 and $1.29 per share. Analysts agree with the revenue guidance, and anticipate revenue at $2.5 billion and EPS at $1.32.
Those earnings are important to the company, which experienced a net loss of $10.8 million in the first quarter compared to $1.7 million in earnings in Q1 2012. However, the first quarter included $28.8 million in costs from portfolio- realignment efforts, the company said in its earnings report. Any sell-off in the stock is unjustified because that one-time adjustment that doesn’t reflect real costs, and it spells big gains after the adjustment.
The company looks even more attractive now that it is expanding. On July 31, Brown Shoe Company, Inc. (NYSE:BWS) said it would expand to Canada starting this month. That move will help the company in the years ahead to not rely solely on the American economy. It also gets me all excited about the prospects for this company making further efforts for international expansion, and that could put the company in league with the likes of Nike and Foot Locker.
Final thoughts
Of these three companies, I see Nike Inc (NYSE:NKE) as being the most secure and able to profit in the future. The company is continually opening up new stores throughout the world, and this will result in a slew of profits once the economy in many of these nations recovers and once Nike is able to find a price point for its products. China shows tremendous promise, but many people in that nation are cautious about spending a lot of money on high-end goods. But because Nike is relatively new to China, it will take some time to rake in major profits. So investors must be patient.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Phillip is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Help Protect Your Portfolio With the Right Shoe Company originally appeared on Fool.com is written by Phillip Woolgar.
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