Covid destroyed business as usual for most industries, and shoe stocks were no exception. Leather shoes fit for the office? No need for them during the pandemic. Those deliveries from manufacturers due on the docks a month ago? Still on a ship somewhere or at the factory, if the product had even been made yet.
Yet footwear, like many businesses, is exiting this period of volatile consumer behavior and supply-chain upheaval. And Nike stock and its peers are yanking themselves up by their bootstraps. In fact, the footwear industry includes some of the top stocks in 2023.
Skechers, On Holding and Decker Outdoor have sprinted sharply higher this year. The group's big dog, Nike, has lagged with a 5% advance, but is finally shaping up to show constructive chart action.
While consumers may be more unpredictable than they were pre-Covid, shoemakers are finding their footing as inventory and supply chain issues seem to even out. That's made those companies' playing field more stable.
"This year will be a reset year for the footwear industry," NPD Group analyst Beth Goldstein wrote in a February report. "After three years of ups and downs, we can expect sales and price trends will level out as consumers settle into their now-familiar lifestyles."
As an industry, the 10 stocks in IBD's Apparel-Shoes & Related Manufacturing group have rallied more than 16% since the start of the year. That runs just behind the Nasdaq, but is more than double the S&P 500's 7.5% gain. And it leaves the industry ranked a strong No. 7 among the 197 industry groups IBD tracks.
Top Stocks In Footwear Industry Trounce Nike Stock
While Nike stock remains the industry bellwether, this year's breakout name has been On Holding. The popularity of the company's shoes with its unique CloudTec technology — cushioning that On says delivers comfort, support and a more efficient run — sent the shares up 95% to Friday. That stomped the advances of the nearest competitors: Skechers, up 25%, and Deckers Outdoor, up 23%. Crocs rallied 40% up to April 24, then dwindled to an 8% gain after earnings and revenue guidance disappointed investors.
"We've seen a bias (among investors) toward quality names," Piper Sandler research analyst Abbie Zvejnieks told IBD, "including companies with strong brands, solid revenue growth, healthy balance sheets and profitability."
Brands that encapsulate those traits include On Holding, Skechers, Crocs and Deckers Outdoor, she says. And although the consumer spending environment is uncertain, customers continue to lean into strong brands offering newer and more innovative shoes.
For the On Running brand, product innovation and newness are driving strong demand, Zvejnieks says. The company is also moving up into markets for more serious, higher-spending runners.
"On is gaining credibility in performance running with launches such as Cloudsurfer and Cloudmonster, while catering to a broader lifestyle segment with styles such as Cloudnova," she said.
Whereas many shoe and apparel makers are niche players, Zvenjnieks says On Holding may have more room to run.
"We see an opportunity for On to be the next big global performance brand, with an opportunity for $5 billion-plus in revenue," Zvejnieks said.
Sales Trends Drive Top Stocks In Shoe Industry
Monthly retail shoe sales hit a record high $3.6 billion in June 2021. Then they leveled off around $3.3 billion through most of 2022. Retail shoe store sales were $3.4 billion in February. That was down 1.9% from January but up 4.3% from last year, according to the most recent Census Bureau data.
Market research firm NPD Group noted footwear volumes, measured in unit sales, began falling in early 2022. But higher average prices and fewer discounts and promotions propped up industry revenue.
Sports and leisure footwear generated the highest sales in 2022, according to NPD Group. But fashion footwear was the biggest growth driver. The return-to-work push and rise in social outings highlighted less casual attire. Fashion footwear will still see some of those benefits in 2023. But the impact will level off as the replenishment needs that propelled the category slow, Goldstein wrote.
NPD Group forecasts U.S. footwear sales revenue will grow at a steady 1% annual pace through 2025, according to its February "Future of Footwear" report.
Trends In Fashion, Athletic Shoes Help Top Stocks
Industry volumes, measured in unit sales, will begin improving in 2024 as average price increases ease. Shoes for casual everyday use will remain the top purchases in the first half of 2023, NPD Group forecasts.
Broadly, Piper Sandler forecasts product newness will drive positive underlying demand trends within footwear.
Goldstein sees customers blurring fashion and athletic footwear as they weigh their priorities.
"The key growth opportunity for footwear brands in this environment will be taking market share," Goldstein said. "Part of this strategy will involve keeping pace with the demands of consumers who have become more deliberate in their purchases."
Potential Footwear Industry Headwinds
Low unemployment and strong savings levels signal a healthy footwear economy, a big plus for the top stocks. But recession risks remain, according to Zvejnieks. While less volatile than during the pandemic, consumer demand can still swing drastically both in stores and online, March and April traffic data showed. Zvejnieks believes some consumers are turning cautious.
That could help push promotional activity — a hangover from the pandemic's inventory overages — further into 2023 than originally anticipated. Although the worst of the industry's excess inventory issues are behind it, she says.
Uncertainty still surrounding China's recovery also presents a risk for companies like Nike and Skechers, according to Zvejnieks. Companies focused on a single style face additional risks.
Piper Sandler sees further upside for Deckers, Crocs and On Holding. "Many of these companies should benefit on gross margin from (an easing of) airfreight and ocean freight expenses, although promotions will be a headwind," Zvejnieks said.
Nike Stock Price Analysis & Earnings Trend
Dow Jones giant Nike continues to reign as the big name in sports apparel. Nike and sister shoe line Converse remain the two most popular footwear brands among Gen Z consumers. That's according to a Piper Sandler semiannual survey of 6,000 teenagers across the U.S.
Nike stock is not one of the top stocks in 2023 performance, however. The company has struggled with gross margins pressured by rising costs. And it's still working through the inventory issues resulting from pandemic unpredictability. That led to earnings declines in four of the past five quarters.
Executives noted in the March earnings call that Nike is making "great progress on inventory." And the company did better than Wall Street expected in each of the past five quarters. Nike revenue has advanced slowly but steadily following the pandemic, rising to double-digit gains the past two quarters.
Nike brand global footwear sales averaged 16.7% growth through the first three fiscal quarters this year, offset by an average 7% quarterly decline in China sales. China sales improved, though, to a 3% year-over-year decline in Q3 from a 15% drop in the first quarter.
Citing its Q3 results, Nike said it expects fiscal 2023 revenue growth in the high single digits, up from the previous forecast of mid-single-digit growth. The company doesn't offer earnings guidance. Analyst consensus projects a 14% earnings decline for the year, which would mark its first slip in three years.
Nike's stock chart has formed a cup-with-handle base with a 128.78 buy point, according to MarketSmith. NKE stock currently is trading about 5% below that buy point. The stock is down about 6% from a February high but is still up 5% since the start of the year. Nike has not yet announced a fiscal fourth-quarter reporting date.
Top Stocks: CROX Stock Price Trend
Broomfield, Colo.-based Crocs is best known for its rubbery, casual-wear shoes. The company in recent years expanded its Crocs brand portfolio from the classic slip-on clogs to include boots, sandals, wedges and sneakers. It acquired the Hey Dude brand and model line last February for over $2 billion in cash and 2.8 million shares.
That wildly popular brand of suede, leather and canvas comfort shoes generated $895.9 million in revenue for Crocs through the final three quarters of 2022, representing 25% of total sales. Hey Dude full-year sales were $986.2 million.
Crocs ranked sixth in teen popularity while its Hey Dude line ranked eighth, the Piper Sandler survey showed.
The company easily cleared analysts' first-quarter revenue and earnings estimates for Crocs in its April 27 report. Second-quarter revenue and earnings guidance came in well below consensus views, however, tripping a steep pullback in share price.
Still, Crocs expects solid growth for the year. The company raised its 2023 revenue outlook to range from 11% to 14% growth. Earnings growth guidance ranges from 2.2% to 7.4%. FactSet projects adjusted earnings rising 5.7% on a 13% sales gain.
CROX stock is still one of the top stocks over the past 12 months, up 115%. But its year-to-date gain has narrowed to single digits. And unlike Nike stock, Crocs shares are now broken down below key technical support.
Top Stocks: DECK Stock Price Analysis
The brand portfolio for Goleta, Calif.-based Deckers Outdoor includes Ugg, Teva and Sanuk brands as well as the increasingly popular Hoka running shoes.
"Particularly for DECK, we continue to see strong momentum at Hoka and renewed brand heat at Ugg, which we think could drive higher revenue growth compared to expectations," Zvejnieks said.
Ugg broke into the 10 favorite footwear brands in the Piper Sandler survey, ranking seventh among all teens and fifth with female teens.
Hoka generated $1.2 billion in revenue over the last 12 months, suggesting a long runway for the brand, BTIG analyst Janine Stichter wrote in a February research note after Deckers' Q3 earnings beat. Stichter hiked her price target on the stock to 560, from 515, in a May 1 note. The target is about 14% above where the stock currently trades.
In the most recent quarter, Deckers Outdoor earnings jumped 24% to $10.48 a share. Revenue growth slowed for the third quarter in a row, rising 13% to $1.345 billion. The company has not yet announced a date for its fiscal fourth-quarter results.
DECK stock is another one of the top stocks in footwear now. It has climbed almost 14% since clearing a flat base in March. Shares are up 23% this year and are just below a 492.54 buy point in a three-weeks-tight pattern.
Top Stocks: SKX Stock Price & Sales Trends
Another California company, Skechers, is headquartered south of Los Angeles in Manhattan Beach. The company's steadily updated lineup of slip-on, comfort, casual and walking shoes continue to step on competitors' market share.
In January, Cowen analyst John Kernan noted Skechers' "value-oriented positioning" resonates as economy-wary investors mind their spending. A Cowen survey found Skechers gaining traction in casual and lifestyle footwear and pulling customers from Nike and Adidas. It gained most of its casual footwear market share last year from consumers earning more than $100,000.
But Skechers products are struggling to shake the stereotype of old-people shoes. The brand's preference share among adults 55 or older was three times higher than with younger customers last year, according to the Cowen survey.
Meanwhile, Skechers posted a surprise profit and higher-than-expected revenue growth in its first quarter. That snapped its average 5% earnings decline over the past four quarters. Domestic and international direct-to-consumer sales both surged by more than 24%. And inventories declined more than 17% vs. the fourth quarter.
Skechers is also among the footwear industry's top stocks in 2023. SKX shares are up almost 10% since breaking out of a cup-with-handle base with a 47.80 buy point on April 11.
Top Stocks: ONON Stock Price And Sales Momentum
On Holding went public at 24 per share in September 2021. The Swiss performance-shoe maker is backed by Roger Federer. ONON stock sprinted to peak at 55.87 that November. Then the pandemic struck and the stock turned volatile.
In 2022, sales rose 55% to more than $1 billion, boosted by the reinvention of its Cloudmonster, Cloudrunner and Cloudgo performance trainers.
"On's rally is being driven by the brand's strong momentum and product acceptance by consumers," Cristina Fernandez, managing director and senior research analyst at Telsey Advisory Group, told IBD.
"The shift toward casual during the pandemic has helped, but the growth has been really driven by innovation and On bringing to the market a new product," Fernandez said. "Consumers were ready for something different."
The performance footwear brand is similar to Hoka in benefiting from these factors, she adds.
Sales, Profit Easily Top Estimates
ONON's fourth-quarter results and 2023 sales and profit outlook were well above analysts' expectations. On Holding plans to report its first-quarter results on May 16.
"Footwear is the key driver for the brand and On has been taking share from other players," she said. On rolled out a number of new products over the past year, "resulting in a bigger presence at its long-standing retail partners."
The company has selectively expanded distribution with new retail partners such as Foot Locker and Dick's Sporting Goods in the U.S. and JD Sports in Europe, according to Fernandez.
ONON Stock Vs. Nike Stock
ONON stock is still an upstart with a market value of $10.4 billion compared with $185 billion for Nike stock. Piper Sandler found On Running and Hoka One One were the No. 12 and No. 19 favorite footwear brands for all teens, respectively. But they rank as the fourth and fifth most-popular athletic footwear brands for upper-income teens. (Nike and Converse were Nos. 1 and 2.)
Fernandez believes the company will keep up a healthy momentum over the next several years, though the rate of growth will slow. On Holding will likely benefit from more people taking up running, the company's core sport. It's broadening its assortment of outdoor, tennis and lifestyle footwear. It is also improving its apparel collection, currently only about 5% of sales, according to Fernandez.
On Holding can further expand its distribution network to include more wholesale and other distribution locations at existing or new partners, she said. And On is still in early stages in some countries like China, compared to its larger competitors.
On Holding stock sits on top of the footwear industry's top stocks in 2023. ONON is trading in a profit-taking zone following a breakout in March. The stock is up 35% since the breakout. Baird downgraded the stock to neutral on April 5 and gave it a 33 price target, about where it's now trading. On April 19, Piper Sandler kept its overweight rating, and raised ONON's price target to 36.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison.
