Brown Shoe: Value Is Exciting Enough

When times get tough, sometimes "boring" is the best place to be. Add to that the fact that Brown Shoe (NYSE: BWS  ) appears to be trading for something of a discount to fair value, and this might be a safe(r) harbor if the retail sector gets tough in the coming quarters.

Folks considering this stock certainly don't have to fear for being elbowed aside by the growth crowd. Revenue grew all of 5% this quarter, and although reported operating income more than doubled, that was assisted in part by some year-ago charges. All the same, double-digit growth in the Famous Footwear and Wholesale divisions is nothing to sneeze at.

So, what about Brown Shoe makes me think that it could be a worthwhile investment?

For starters, Brown Shoe is oriented toward the non-high-end parts of the shoe market. Famous Footwear is a sizable part of the business and competes with other value-oriented retailers like Payless (NYSE: PSS  ) and, to some extent, Shoe Carnival (Nasdaq: SCVL  ) and Wal-Mart (NYSE: WMT  ) . And while shoes may be a delayable expense for adults, that's not quite so true with kids. So if economic times get tougher, maybe Famous picks up some business.

Moreover, Brown Shoe is to some extent all grown up. There will continue to be new store openings on the docket, but overall capital expenditures on expansion should be heading relatively lower over time. Hopefully, then, that will mean the potential for better free cash flow leverage and better returns on capital.

Speaking of those returns on capital, I note that Brown Shoe is once again talking about restructuring operations. Now, that's fine as far as it goes, and some of the moves make a lot of sense (sourcing from Brazil and China instead of Italy, for instance). All in all, though, I'd rather hear more talk about a firm commitment to maximizing economic profit.

While Nike (NYSE: NKE  ) and K-Swiss (Nasdaq: KSWS  ) have both recently caught my eye as potential values, I've been something of a fan of Brown Shoe for a while longer. I'd like to see better performance in terms of return on capital, but value-oriented investors who can look past somewhat sleepy top-line growth might like what they see on the shelves at Brown Shoe.

For more fashion-forward Foolishness:

Wal-Mart is aMotley Fool Inside Valuerecommendation. Take the newsletter for a 30-day free trial.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 515569, ~/Articles/ArticleHandler.aspx, 9/16/2014 5:35:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement