3 Best Stocks for Investing in Footwear
In no particular order, I believe these are the best three stocks for investing in footwear.
That iconic swoosh
First up is Nike (NYSE: NKE ) , which last quarter alone generated a whopping $4.57 billion in Nike brand footwear sales, good for over 60% of total revenue. Despite its already enormous size, that was an 8% increase over the same year-ago period, slightly outpacing overall 7% growth even as the company faced significant foreign currency headwinds. Excluding currencies, Nike brand footwear sales would have climbed 14%.
Nike also owns Converse, which grew revenue an even more impressive 28% (33% excluding currencies) to $538 million over the same period. Thanks to both recent legal action to stem copycat brands and heavy "demand creation" and infrastructure investments from Nike, Converse should be able to continue its outsized growth.
Nike earnings have consistently outpaced its modest overall growth, with net income last quarter climbing 16% to $791 million, while net income per share rose 19% to $0.89. For the latter, investors can thank Nike's fortress-like balance sheet, which has enabled it to continuously buy back shares under an $8 billion share repurchase plan authorized in late 2012. Nike still has around around $2.7 billion of that authorization remaining, and it ended the quarter with cash and investments of roughly $5.4 billion.
As it stands, however, Nike stock is currently trading near all-time highs on the heels of those solid results. But with an annual dividend yield of roughly 1.1% and shares trading around 25 times expected 2015 earnings, that is a reasonable premium for long-term investors looking to try on this top notch business.
Next is Under Armour (NYSE: UA ) , whose founder and CEO, Kevin Plank, regularly takes shots at Nike by insisting that his company continues "to hunt down becoming the No. 1 athletic-footwear brand in the world."Considering the massive size of the Nike footwear business, it is no surprise that Plank boldly stated a few months ago, "We ultimately believe Footwear should be as big, if not bigger, than our apparel business."
Under Armour stock also arguably reflects that growth, with shares currently trading at 55 times expected earnings and 5.5 times trailing-12-month sales. But as a longtime Under Armour shareholder, I have learned not to underestimate the company's ability to grow into its seemingly steep valuations.
A fashionable approach
Finally, if you prefer something dressier, consider playing the footwear space with another iconic brand: Coach (NYSE: COH ) .
Yes, Coach is primarily known for its stylish handbags. But earlier this year, Coach stepped out on a limb to purchase luxury footwear specialist Stuart Weitzman Holdings in a deal worth $574 million. The deal was especially surprising, as it marked the very first acquisition in Coach's 74-year history.
In explaining its rationale for the purchase, Coach cited "significant domestic and international growth potential" for the brand. Stuart Weitzman achieved net revenue of approximately $300 million in the previous year after enjoying a solid five-year compound annual growth rate of 10%. Going forward, Coach says it will be able to lend its expertise in handbags and accessories to further develop supplementary Stuart Weitzman product lines. In turn, Stuart Weitzman will share its know-how in footwear development to improve Coach products.