All Hands On Deck (PSS, NKE, WWW, TBL, ADDYY)

By Will Ashworth | June 17, 2010 AAA

We're into the sailing season now, so let's look at the major players in the boat-shoe business. While flip-flops seem to be the footwear of choice for so many in the summer, for those preferring the solid comfort of a well-built boat shoe, the choice is likely the Sperry Top-Sider, the best-known and oldest brand of boat shoe available. Paul Sperry invented the Top-Sider in 1935 and they've been selling them ever since. Today, owned by Collective Brands (NYSE:PSS), we'll look at the seven companies that compete for boat shoe supremacy.

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Boat Shoe Competitors

Brand Company Market Cap
Sperry Top-Sider Collective Brands (NYSE:PSS) $1.25B
Cole Haan Nike (NYSE:NKE) $35.5B
Ecco Privately Held N/A
Geox Geox 1.0B Euros
Rockport Adidas (OTC:ADDYY) $10.0B
Sebago Wolverine World Wide (NYSE:WWW) $1.4B
Timberland Timberland (NYSE:TBL) $1.0B

King of the Sea
Footwear News made Top-Sider its 2009 Brand of the Year. Not wanting to lose momentum as it celebrates its 75th anniversary in 2010, the company has opened three stores in Florida, one in Texas and more to come across the country. Collective Brands first-quarter report was mostly positive, aided by strong sales in its performance and lifestyle wholesale group, which includes Sperry Top-Sider. The wholesale group's sales increased 16.5% to $173.4 million and its operating income jumped 62.9% to $23.3 million. Although the wholesale group generated just 20% of the overall revenue in the quarter, it generated 29% of Collective's total operating income.

In addition to Sperry Top-Sider, the wholesale division saw increased sales from its Saucony and Keds brands. It's too early to tell how the new retail stores will do but if it continues to win awards from the trade and deliver strong revenue growth, you can be sure Collective will pour greater resources into the iconic brand.

The Rest
Clearly, Sperry Top-Sider is the brand to beat when it comes to boat shoes. Although every brand of shoe seems to have a boat shoe of some description today, none can match the history of Sperry. Ironically, Collective Brands CEO Matthew Rubel ran Cole Haan from 1999 until 2005 when he took the top job at Payless Shoes, which then bought Stride Rite in 2007, creating the existing company.

Cole Haan sells its version of boat shoe with Nike Air technology for $148, more than twice what Sperry charges for its original. Cole Haan is part of Nike's "Other Businesses" segment, which includes Nike Golf, Converse, Hurley and Umbro.

In the third quarter, Cole Haan's revenues were flat year-over-year. On an annual basis, they've remained around $470 million for the last three years. In May, Nike suggested its other businesses would add an additional $1.5-$2.0 billion in revenue by 2015. Most of it will come from Converse and Umbro. Clearly, Cole Haan is not its real competition.

Price Points
Sperry Top-Sider's true competition is from Rockport, Sebago and Timberland whose boat shoes sell at Zappos.com between $75 and $100. Geox and ECCO are similarly priced to Cole Haan's boat shoe.

In terms of revenues, Timberland is the biggest of the four companies (including Sperry Top-Sider) with footwear revenues in 2009 of $931 million. How much of this is from boat shoes isn't readily available but I'll estimate that boat shoes represent 25% of footwear revenues for all four companies. That being the case, Timberland's boat shoe revenues in 2009 were $233 million, $83 million for Rockport, $50 million for Sebago and $128 million for Sperry Top-Sider.

Of my four estimates, the one I have the biggest problem with is Timberland. I just don't see them doing more boat shoe business than Sperry does. For that reason, I'll guess that Timberland and Sperry are neck-and-neck in boat-shoe business.

The Bottom Line
When you're a brand that's been around for 75 years, you've seen plenty of good times and bad. This year looks to be a good one for Sperry and the rest of Collective Brands businesses. While sales won't grow much, it has some of the highest operating margins in the business. When all's said and done, boat shoes never go out of style. (To learn more, check out Analyzing Retail Stocks.)

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