The End of Toning Shoes?

I have written on numerous occasions that the death of the fad that is toning shoes would happen sooner rather than later. However, it appears that these silly shoes are going away even faster than I thought, if Finish Line's (Nasdaq: FINL  ) fourth-quarter report is any indication.  

The shoe retailer actually posted a very strong quarter, with earnings up 12%, but it could have been even better if the company hadn't purchased so many toning shoes. Skechers (NYSE: SKX  ) has been a huge beneficiary of this fad, and other shoemakers, like Reebok, have participated as well. Nike (NYSE: NKE  ) has stayed out of this business completely, instead choosing to focus on making and not faking new technology.

Sales of toning shoes at Finish Line fell by 45% during the quarter, hurting margins as the company was forced to discount these products significantly just to unload some of the inventory overhang. While Finish Line CEO Glenn Lyon was somewhat optimistic in the previous quarter that the toning shoe fad might have a bit more fuel in the tank, he all but threw in the towel during last week's conference call, saying that the company was ready to move onto new trends.

Shares of Skechers remain stuck near 52-week lows and continue to look cheap by a number of measures, and it trades at tangible book value. However, I still believe investors should stay away from this name until its toning line inventory issues are cleaned up. Inventory now comprises about $400 million of the company's $915 million market cap, so any major discounting would make that book value figure illusory.

With retailers buying less and less of this product, I don't foresee the inventory mess easing significantly anytime soon at Skechers. So I think it's best that investors stay on the sideline of this underperformer.

Andrew Bond owns no shares in the companies listed. Nike is a Motley Fool Stock Advisor recommendation. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


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  • Report this Comment On March 29, 2011, at 6:12 AM, mattpowellmf wrote:

    according to sporting goods research firm SportsScanINFO, sales of toning shoes are only down 10% for the year so far. Hardly an indicator that "these silly shoes are going away faster than I thought".

    Good analysis begins and ends wiht good research. Otherwise its just silliness.

  • Report this Comment On March 29, 2011, at 1:48 PM, TMFBond007 wrote:

    Matt,

    Thanks for the comment.

    Shouldn't a fad in its infancy be growing? Especially in a growing economy.

    Maybe the fire sale prices that these things are going for will help spur some more sales, but apparently that isn't working at Finish Line.

    The research comes straight from company executives. Unless they are not telling the truth (which I very highly doubt), it's probably not silliness.

    AB

  • Report this Comment On April 02, 2011, at 6:53 PM, ManillaWise wrote:

    I'm definitely silly. I told myself, I see Skechers everywhere, I know people personally that wear them, and these numbers look great!

    But then I thought, shape ups are stupid.

    So I decided right then: if I go to Skechers' website and see Shape Ups first, then I'll stay away from the stock.

    -click-

    Shape Ups!

    Not only were they first, they were the only thing on offer.

    -ouch-

    I think I'll stay clear, now that's silly analysis indeed. But I wont lose any sleep.

  • Report this Comment On April 07, 2011, at 4:16 PM, stgodby wrote:

    Andrew, your timing is impeccable. SKX closed at a low of 18.80 March 25 only days before your wrote this article and has since risen 12.5% since then. I also went to the sketchers home page and navigated to the mens selection. I have always liked sketchers styles and own several pairs of their products. When sorted by top sellers, all of their top selling shoes are going for $90-$100.00. Maybe I don't shop much, but that doesn't sound like heavy discounting to me. Even their sandals were priced at $80.00. I guess the old addage buy when everyone else is selling would apply here.

  • Report this Comment On May 30, 2011, at 9:25 PM, xxmiamiaxx wrote:

    TO me, they are more then just a fast growing fad. I have serious foot problems and these shoes are the only thing that are helping. I though am having trouble finding any, that fit. I where a size 10, but most shoes sizes anymore I have to buy a size 12 in.

    They better not go away because I really need these shoes. I have high arches and issues with my toes popping out of the sockets all the time, I have the scares on my feet to prove it. I need these shoes. so they are not a fad, they are more of a medical need for me to walk.

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