3 Shoe Companies for Different Ages

Damian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Few brands are as recognized worldwide as Nike (NYSE: NKE) is in the sports industry. But before running one must learn to crawl, and Carter’s (NYSE: CRI) dominates that segment. On the other hand, some prefer to remain behind curtains, like Iconix (NASDAQ: ICON), and be a license recipient. Let us look into all three and draw some conclusions about making a long-term investment in any of them.

Crawling and raising profits

Childbirth is adversely affected by economic difficulties, and increases in the summer season. Since the economy took an upward trend, Carter’s has been riding it, and summer is just around the corner. With a 400% return in the last 5 years, and 40% year-to-date -- double that of the S&P 500 -- Carter’s is expected to continue growing.

Aided by online sales and same-store sales increments, Carter’s has seen growth domestically and internationally. Net revenue and net income have seen a 7% and 28% increment respectively. On the structural side, management is focusing on a new distribution scheme and headquarters to improve overall efficiency. Also, much attention is driven towards improving OshKosh’s profitability.

Financially, Carter’s has reported revenue increments that helped to control debt and sustain a healthy cash flow. OshKosh’s acquisition dented finances, but an upward trend has been set helping to keep an operating margin above the industry’s average. Lastly, the company has completed its first dividend payout and stock buyback.

In all, Carter’s leads the baby apparel market. Great financial standing before, during, and after the economic slowdown, and responsible management allowed the firm to grow above the S&P 500 and industry. Now, the company has turned its attention to efficiency and its shareholders. So, it is recommended to buy before August and September, the months with the highest birthrates.

Licensing to increase earnings

Few companies can own a big market share, remain in the shadows, and report profits; Iconix is one of those. Owning a big chunk of licenses, the firm leaves the dirty work of producing and stocking to retailers. Hence, risks are reduced and profits increased exponentially. The earnings report for the first quarter shows a 19% increment on revenues.

Acquisitions and joint ventures allowed Iconix to create a brand portfolio. The firm acquired IP Holdings and Lee Cooper in cash, evidencing high cash flow. While at the same time, the company developed joint ventures with Buffalo International and Icon Modern Amusement. Such operations helped the business to be increase operations in the USA, Europe, and developing countries, reducing risks associated with economic headwinds.

Financially, Iconix has reported revenue and cash flow increments. Most importantly, the business model’s success has made possible the acquisition rampage, and increasing cash volumes. On the down side, debt has been rising, competition is expected to tighten, and currency exchange may hurt profits.

Retailers have been enticed with new long-term exclusive-brands direct-to-retail licenses. It is expected for retailers to push Iconix’s brand and further improve profits. Last, the business is expected to double S&P 500’s growth for the upcoming year, and price has taken a little dip given investors a great opportunity to enter. So, it is recommended to buy for a prosperous long-term investment.

Running does not guarantee results

There is not much that can be said about Nike that you don’t already know. The firm will sponsor the 2014 FIFA World Soccer Cup and has entered the yoga and wearable technology market lately. But, most importantly, it sponsors Barcelona FC giving the brand an unmatched worldwide exposition. Do not get me wrong, sponsoring the Brazilian soccer team is a plus, but they do not play as often as the Catalonian team.

Nike is the industry leader for footwear, way ahead of its competition. The company has built a strong portfolio with internationally recognized brands, and has pushed forward with global expansion. Additionally, the direct-to-consumer business model has cut out the middleman, placing specialists closer to clients. Specialists fill an important role as the firm continues to develop wearable technology, but also for the increasing novice runners worldwide.

When looking at financial indicators, Nike’s picture blurs a bit since there have been many internal sales. Also, cash has been on the downside for the last 2 years and cash flow has taken a big dent. Additionally, the firm has been negatively impacted by political, economical, and social events in manufacturing states like China, Vietnam, Indonesia, and Thailand.

Fundamentals are not that great either. Nike is trading at a small premium to industry averages, yield and dividends are below competitors, and price is taking an interesting dive. So, it is recommended to hold until conditions at manufacturing states stabilize and fundamental indicators recover.

Crawl first, then run

Running has been on the rise considerably, increasing opportunities for companies like Nike. Nevertheless, rising demand also calls for a responsible management. It is my understanding that Nike has never addressed issues at manufacturing countries in a decisive manner. For the same reason, I prefer to buy Carter’s because there is more room to grow and management remains spotless of wrongdoing. Iconix is also a great buy, especially when its business model avoids manufacturing risks.

Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus