The New Shoe Dog Millionaires
Two legendary shoe brands trading at a rare discount.
Despite the incredible performance of many US companies over the past 5 years, there have been equally poor results for some of the world’s best known brands during the same time period.
This trend, where different industries are performing in contrast to each other, could quickly be compared to the “K-shaped economy.” But upon closer inspection you’ll find that some of the best brands in the United States, and the world, have fallen to generationally low prices.
This is not to say that there aren’t reasons. A quick explanation for globally recognized brands underperforming over the past five years can be blamed on the pandemic. While many tech companies have catapulted themselves out of the global event, other companies have stumbled and wandered around with no direction.
Some of these underperforming companies are still fighting their way out of the woke paper bag they put themselves into. Other companies are struggling to find footing with newer demographic trends. And some companies have experienced a never ending series of internal missteps.
Regardless of the ‘why,’ the result is that some of the world’s best known brands are on sale right now.
Betting on Brands
It would be foolish to assume that a major household brand name will never disappear. There are plenty of examples of companies that have died a slow death because of their inability to innovate (Kodak, Blockbuster, PanAm, Oldsmobile, etc.).
However, there are other companies that are still alive today that would be nearly impossible to kill. That’s because of the massive catalog of sub-brands that they own. Some of the best examples would be Procter and Gamble ( PG 0.00%↑ ) or Unilever ( UL 0.00%↑ ). Their sub-brands are a part of everyone’s daily lives and would be very difficult to live with out.
Although not as necessary as the two companies just mentioned, a similar scenario exists in the clothing and shoe industries. There are many large companies that own a suite of world famous brands, like LVMH ( $LVMHF ), that are just too entrenched in society to fail.
That doesn’t mean that these companies won’t go through tough times. Instead, they will go through periods of lackluster results, and then eventually resume growth due to their brand reputation.
One the best examples right now is Nike ( NKE 0.00%↑ ) . The company seems to have done everything wrong over the past several years, which has sent share prices plummeting to levels not seen since 2014.
It’s entirely possible that Nike’s share price will continue its downward trend for the foreseeable future. But, will the brand disappear altogether? Highly unlikely.
What’s interesting about Nike’s situation is not so much related to the company itself, but what has happened to the broader shoe industry. Whether it’s Nike’s poor performance that has pulled down other companies, or just the general weakness in the consumer cyclical sector itself, the net result is that there are huge opportunities right now.
That’s especially true for legacy shoe brands that have solid financials, reasonable valuations, and are growing into new emerging markets.
Shoes for Status
There is an incredible development that has taken place around the world for the past several decades.
Source: World Bank
Poverty rates have declined significantly and are still projected to improve for many parts of the world. This is of course good for humanity as a whole, but it’s also good for companies selling their products to emerging consumer classes.
When it comes to shoes, there are two quotes that sum up this new consumer class quite well:
"Give a girl the right shoes and she can conquer the world.” - Marilyn Monroe
“A woman with good shoes is never ugly.” - Coco Chanel
Guys are probably less likely to admit the same sentiment, but the general message is clear: One of the best ways to feel better about yourself, and signal to others that you are someone of worth, is to wear the right attire.
Wanting to leave someone with a good last impression, after they’ve inspected you from head to toe, shoes are often times the most expensive item a consumer will splurge on.
We saw this trend play out in real time, just prior to the pandemic, where shoe companies around the world exploded in value. Today, despite continued strong sales, valuations have tumbled.
Here are some of those companies:
V.F. Corporation ( VFC 0.00%↑ )
Steven Madden Ltd ( SHOO 0.00%↑ )
Columbia Sportswear Co ( COLM 0.00%↑ )
Crox Inc ( CROX 0.00%↑ )
Wolverine World Wide Inc ( WWW 0.00%↑ )
These companies, many of which trade at single digit forward multiples, own the shoe brands that consumers continue to purchase on an everyday basis.
But there are two companies which sell premium shoes so unique and well known, that it’s surprising that they have dropped in value along with their lessor priced peers.
Premium Status for a Discount
It’s rare to have a style of anything, in any industry, which survives multiple generations. It’s even more rare to see the sales of these timeless designs increase as time goes on.
For these two companies, which were recently trading for double their current share price, that’s exactly what’s going on…
