Speciality Shoes Took a Decking

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The maker of the famous UGG boots, Deckers Outdoor (NASDAQ: DECK), nosedived 9% last week despite posting better-than-expected EPS. The big news was an $0.85 per-share loss, which happened to be $0.21 less than consensus. 

But its UGG brand saw sales down 6.9% year-over-year. Deckers relies heavily on its UGG brand, which is not a hot topic given that it's currently the middle of the summer. UGGs account for over 85% of sales. Yet, worth noting is that Deckers also owns the Sanuk and Teva sandals brands. 

The turnaround story

Two unseasonably warm winters have put a real hurting on Deckers' stock, with shares down nearly 45% over the past two years. Going forward, the company plans to make the move to a "classic" boot and shoe company, offering sneakers and ballet flats. 

Its other initiative includes offering UGG Pure, which includes using wool material as opposed to sheepskin. This product should prove to be lower cost. 

The company hopes to hit a sales target of $2.4 billion by 2015, including UGG sales of $1.8 billion, Teva sales of $250 million and sales from Sanuk brands of $200 million.

Deckers hopes to add 30 stores by 2013, two-thirds of which will be in Asia. Longer term, the shoe company plans to have a store base of 200 by the end of fiscal 2015. 

Fellow specialty shoe company Crocs also took a 20% plus nosedive last week. The company posted a 40%-plus fall in profits from $61 million in 2012 to $34.5 million in fiscal 2013. EPS came in at $0.48, well below consensus of $0.63. 

The thing is, everyone wears shoes, it's just a matter of the brand. Deckers and Crocs are specialty shoes that just don't appeal to everyone. However, there are a couple of other stocks that have a broader appeal.

A rising star

Skechers (NYSE: SKX) has an impressively diverse product portfolio, ranging from fashion, athletic, non-athletic, and work footwear. Last week, Skechers posted 2Q EPS of $0.14 compared to the $0.04 loss for the same quarter last year. As I noted in my thesis, the stock could easily reach its all-time highs of $40. 

Sales are expected to be up over 15% in 2013 due to new product launches and new store openings -- the company hopes to open upwards of 50 retail stores in 2013. The company also boasts a solid $265 million cash position compared to long-term debt of only $125 million. 

The other thing I like about this shoe company is various international growth opportunities. Skechers is quickly becoming a formidable competitor to Nike (NYSE: NKE) and Adidas in the performance-sneaker category. Its Skechers GOwalk sneakers have proved to be very popular with women, with strong demand in the retail stores and online.

The leader

Nike is the market share leader in the U.S. when it comes to footwear. At the end of last month, Nike posted March-ended quarterly EPS of $0.76 compared to $0.58 for the same period last year. The big news was that worldwide futures orders were up 8% year-over-year.

The company has a portfolio of brands that include Nike, Converse, Chuck Taylor, Hurley, All Star and Jack Purcell. Nike also has a solid balance sheet and is returning cash to shareholders. During fiscal 2013. the company bought back 33.5 million shares for about $1.7 billion; it also pays a modest 1.3% dividend yield. 

Bottom line

While Deckers is an interesting turnaround story and deep value investing opportunity, it will likely be some time before we see the fruits of its labor. However, for investors looking for a couple of shoe investments that will provide less volatility, Nike, with its leading market position, and Skechers, with its diversified product portfolio and compelling valuation, are solid investment choices.

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Marshall Hargrave 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!

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