The market for cool kicks is as tough as any out there. In an industry that includes the likes of Steve Madden (NASDAQ:SHOO), Skechers (NYSE:SKX), and Deckers' (NASDAQ:DECK) Simple brand, as well as high-end manufacturers like Donald J Pliner, Mark Nason, and Hugo Boss, stepping into this tough crowd is a good way to get kicked in the shin.
Another firm competing in the premium-shoe market, Kenneth Cole (NYSE:KCP), recently caught the eye of Fool contributor Nathan Parmelee. With its latest results in mind, let's take another look at the company to see whether its stock is sized to fit.
What first sticks out is that Kenneth Cole's fourth-quarter net income declined to $9.3 million, a 9% drop year-over-year. Given that revenues for the quarter increased 5.3% to $136.1 million, it appears that Kenneth Cole got hit by expenses that exceeded what the company had expected. And it did, echoing what has become a common complaint among just about every publicly traded U.S. company these days -- "higher than anticipated costs for Sarbanes-Oxley compliance."
Kenneth Cole reported that infrastructure costs were also higher. The company had hoped for a greater sales increase for the quarter to make up for the setbacks in expenses, but the gains fell short, leaving its fourth-quarter results in knots.
Despite the year-end challenges, though, Kenneth Cole was able to increase net income for fiscal 2004 to $35.9 million, a 10.1% year-over-year improvement. The company's earnings growth improved by a nearly identical 10.2% to $516.2 million, and operating profit margins rose by 10.9%, despite the Sarbanes-Oxley challenges.
Looking forward into fiscal 2005, Kenneth Cole expects revenues to grow approximately 10% to a range of $550 million to $575 million, and it anticipates earnings per share to improve to between $1.94 and $2.00 -- approximately 14% higher over 2004's mark of $1.74.
With a blended growth rate of 12% matched up against a stock that's trading 14 times current-year earnings, Kenneth Cole appears to be fairly valued in the upper-$20s. It has a dividend yield of just over 2%. And even more enticing, the enterprise shows no scuff marks on its balance sheet: It sports $120 million in cash and marketable securities, with no debt.
But for this company to be a shoo-in -- or should we say "shoe-in"? -- for the top spot on a stock wish list, Foolish investors may want to look for even better bargain days ahead before lacing up this enterprise.
To read up on other trendy shoe manufacturers, check out these articles:
Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
