Three Stocks Stepping Up in the Footwear Industry
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three footwear stocks. With the footwear industry making positive strides, should you consider the three stocks of Crocs Inc. (CROX), Rocky Brands Inc. (RCKY) and Skechers USA Inc. (SKX)?
Footwear Stocks Recent News
The global footwear market is set to grow in the coming years. According to a Grand View Research report, the market was worth $438.62 billion in 2023 and is expected to grow by 4.3% each year from 2024 to 2030.
One of the primary drivers of growth is the rise of athleisure, which merges athletic and casual footwear to meet diverse consumer needs. The trend is favored by younger generations who prioritize health, fitness and style, and it’s also embraced by older consumers seeking comfort and durability. At the same time, the growing preference for sustainable products is shaping the market, as consumers are increasingly drawn to footwear made from eco-friendly materials and produced with sustainable practices. Advancements in footwear technology — such as smart features that monitor health metrics and enhance athletic performance — attract tech-savvy buyers looking for multifunctional products.
With the global market projected to reach $543.9 billion by 2030, footwear companies like Crocs, Rocky Brands and Skechers may be well-positioned to capitalize on these emerging trends.
Grading Footwear Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that research and real-world investment results indicate to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three footwear stocks — Crocs, Rocky Brands and Skechers — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Footwear Stocks
What the A+ Stock Grades Reveal
Crocs Inc. (CROX) specializes in designing, developing, marketing, distributing and selling casual lifestyle footwear and accessories for men, women and children. The company operates through two main segments, which are the Crocs and HEYDUDE brands. The Crocs brand features Croslite material, a molded technology known for its extraordinary comfort, creating footwear that is soft, lightweight, non-marking and odor resistant. The HEYDUDE brand offers versatile shoes with a unique silhouette. Crocs products are available in over 80 countries through two primary distribution channels: wholesale and direct-to-consumer. The wholesale channel includes multibrand retailers, monobranded stores,
e-tailers and distributors, while the direct-to-consumer channel encompasses company-operated retail stores, e-commerce sites and third-party marketplaces.
Crocs has a Momentum Grade of B, based on its Momentum Score of 68. This means that the stock’s momentum has been strong in terms of its weighted relative price strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. The ranks are 47, 90, 73 and 34, sequentially from the most recent quarter. The weighted four-quarter relative price strength is 0.5%.
A higher-quality stock possesses traits associated with upside potential and reduced downside risk. Backtesting the Quality Grade shows that stocks with higher grades, on average, outperformed stocks with lower grades from 1998 through 2019.
The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Crocs has a Quality Grade of A, based on a score of 99, which is very strong. The company ranks strongly in terms of its return on assets and F-Score. Its return on assets of 17.3% ranks in the 95th percentile among all U.S.-listed stocks, and its F-Score of 8 ranks in the 95th percentile. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position. It considers the profitability, leverage, liquidity and operating efficiency of a company. Crocs also has a buyback yield of 2.8%, which is above the sector median of –0.2% and ranks in the 86th percentile.
The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. The company’s Growth Grade is A, which is very strong. Crocs has generated positive annual cash from operations in the past five consecutive years and has a five-year annualized sales growth rate of 29.5%.
Rocky Brands Inc. (RCKY) is a designer, manufacturer and marketer of footwear and apparel, operating under a diverse portfolio of brands including Rocky, Georgia Boot, Durango and Lehigh, the Original Muck Boot Company, XTRATUF, Ranger and the licensed Michelin brand. The company operates through three segments: wholesale, retail and contract manufacturing. The wholesale segment distributes products through over 10,000 retail locations across the U.S., Canada, the U.K. and other regions. The retail segment sells directly to consumers via its Lehigh business-to-business operations, CustomFit websites, consumer e-commerce sites, third-party marketplaces and Rocky outlet stores. The contract manufacturing segment includes sales to the U.S. Military, private label sales and manufacturing or sourcing footwear products on behalf of specific customers.
The company has a Value Grade of A, based on its Value Score of 91, which equates to deep value. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).
The company has a price-to-free-cash-flow ratio of 3.3, ranking in the sixth percentile. Its price-to-sales ratio is 0.44 and its enterprise-value-to-EBITDA ratio is 6.7, ranking in the 18th and 25th percentiles, respectively. The price-to-book ratio is 0.91, ranking in the 27th percentile.
Earnings estimate revisions indicate how analysts view a firm’s short-term prospects. Rocky Brands has an Earnings Estimate Revisions Grade of C, based on a score of 58, which is neutral. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Rocky Brands reported a positive earnings surprise of 78.9% for the second quarter of 2024. Over the last three months, the consensus earnings estimate for the third quarter of 2024 has decreased from $1.085 to $0.985 per share, due to two downward revisions. The consensus earnings estimate for full-year 2024 has decreased from $2.865 to $2.815 per share, based on one downward revision.
Rocky Brands has a Growth Grade of A, which is very strong. The company ranks in the 73rd percentile for its five-year annualized sales growth rate of 12.8%.
Skechers USA Inc. (SKX) designs, develops and markets a wide range of footwear, apparel and accessories for men, women and children. The company operates in two main segments: wholesale and direct-to-consumer. The wholesale segment includes sales to a variety of partners, such as Skechers-branded stores operated by third-party franchisees and licensees, family shoe stores, specialty athletic and sporting goods retailers, department stores, big-box club stores and distributors in select international markets. The direct-to-consumer segment encompasses sales through company-owned Skechers-branded stores, e-commerce sites, third-party marketplaces and digital platforms. Skechers’ lifestyle offerings feature comfort technologies such as Skechers Hands Free Slip-ins, Skechers Arch Fit, and Skechers Air-Cooled Memory Foam.
Skechers has a Quality Grade of A, with a score of 93, which is very strong. The company ranks strongly in terms of its F-Score and its Z-Score, which measures bankruptcy risk. Its F-Score of 7 ranks in the 84th percentile among all U.S.-listed stocks, and its Z-Score of 8.66 ranks in the 85th percentile. Skechers has a gross income to assets of 56.2%, above the sector median of 30.4%, and a buyback yield of 1.6%.
Skechers has a Value Grade of B, based on a score of 61, which is considered good value. The company ranks in the 34th percentile for its shareholder yield and in the 43rd percentile for its enterprise-value-to-EBITDA ratio. The company has a shareholder yield of 1.6% and an enterprise-value-to-EBITDA ratio of 9.6. A lower price-to-free-cash-flow ratio is considered better value, and Skechers’ price-to-free-cash-flow ratio of 11.6 is below the sector median of 15.8. The price-to-sales ratio is 1.09, which ranks in the 38th percentile.
The company has a Momentum Grade of C, based on its Momentum Score of 54. This means that the stock’s momentum is average in terms of its weighted relative price strength over the last four quarters. The ranks are 43, 76, 77 and 47, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –2.7%.
Skechers has a Growth Grade of A, which is very strong. The company ranks in the 73rd percentile with its five-year annualized sales growth rate of 11.5%.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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