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Tickers in this Article: SHOO, AMZN, NKE, WWW, DECK, SKX
Two things happened recently that show the selling power of shoes. First, online shoe retailer was sold to (Nasdaq:AMZN) for $885 million in cash and stock; then, Steven Madden (Nasdaq:SHOO) announced second-quarter earnings that beat analyst expectations by 17 cents, or 35%, sending the shares up 11% on the day of the announcement. More importantly, Madden upped its earnings guidance for the year to between $2.05 and $2.15 a share. That gives it a forward P/E of 14, making it an attractive investment, especially if predictions that the recession is ending are indeed correct. The question I have is whether these are two isolated success stories. Could other shoe-related businesses be about to benefit as well?

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Shoe Company Earnings Surprises

Market Cap
Earnings Surprise +/-
Wolverine World Wide (NYSE:WWW)
Met Expectations
Deckers Outdoor (Nasdaq:DECK)
Skechers (NYSE:SKX)
Steven Madden (Nasdaq:SHOO)

Looks Can Be Deceiving
At first glance, the above table leads me to believe that Steven Madden's success isn't an isolated incident. Four out of the five companies beat analyst expectations and the fifth met them. But look more closely and you'll see that not everything is rosy in the shoe business. For instance, Skechers beat analyst expectations by 28%, but it still lost 13 cents per share and revenues declined by 16% in the second quarter. A loss is always a loss, but compared to last year's second quarter loss of 31 cents, it's still a victory. The company does expect to be profitable in the second half of the year, so keep an eye on it.

Then there's Decker's Outdoor, maker of the trendy UGG boot. It is expected to lose 10 to 15 cents in the second quarter because of marketing expenses. However, it moved those expenses to the second half of the year and instead made a profit of 22 cents a share on a 23% increase in sales for its sheepskin boot.

Remember those marketing expenses I mentioned earlier? Apparently, they aren't going to help sales, which are expected to fall in the second half of the year. On the news, the stock dropped more than $9. At its current price, I really like this one. It's trading at a forward P/E of 8.7 and its enterprise value is less than five times its EBITDA. At the end of the day, analysts expect it to earn $7.33 a share. Now that's a number you can't ignore.

A Swoosh Revival
Nike is still the 800-pound gorilla in footwear, despite an earnings drop of 21% in its latest fiscal year ending May 31. With revenues over $19 billion, you can never take the Beaverton, Oregon-based company for granted. It's currently in the middle of a fairly serious pruning of management and overhead in order to better compete in these recessionary times. It obviously sees more problems ahead. However, the best news out of Nike was its latest hire: retail veteran Jeanne Jackson in March. Jackson did wonders at both Banana Republic and Wal-Mart (NYSE:WMT) in the 1990s and then semi-retired to spend time with her kids. Now she's back in the game, and she's taken control of Nike's direct-to-consumer business, which includes its retail stores. I'm not impressed with any of Nike's stores so far, but my bet is that her impact will be substantial.

Bottom Line
It's safe to say that Steven Madden's recent earnings don't mean the shoe business is fully on the rebound. However, I would say its closer to a resurgence than a collapse and this makes shoe stocks an option worth pursuing. (For more on analyst expectations, be sure to read Analyst Recommendations: Do Sell Ratings Exist? and Analyst Forecasts Spell Disaster For Some Stocks.)

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