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    MARKET EDGES

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I've been keeping my eye on the so called 'revival' in footwear industry sales. We started to see it in the higher price points about a month ago, and that has not cooled. Sources in the off-price channel are telling us that they're having a tough time getting their hands on inventory, as 'the channel is just so darn clean.' Some of this is a snap-back from a dreadful 1Q. But what I find so interesting is the uniformity among channels of distribution. Consider the following...
  • 1) Units sold are not knocking the cover off the ball by any means, but this is entirely offset (and then some) by higher ASPs. Athletic Specialty, Department Store, National Chain, and Shoe Chain are all up 2-5%.
  • 2) The National Chain channel is showing the greatest strength in ASP, but there's a dark side to this. My sense is that nearly all of this is driven by Target. My sources indicate that Target is planning its footwear unit sales down better than 10% for the balance of the year.
  • 3) I'm liking these trends as it relates to Payless. This company's margin potential is tremendous, but has been crushed over the past year because an ill-timed (overpriced) acquisition coincided with a meaningful downshift in industry sales. That's painful for a company with zero square footage growth and a highly levered balance sheet. If this turn in industry fundamentals is for real - even for a couple quarters, then 2H numbers could prove to be way too low. That matters at 3-4x EBITDA.