• A Special HedgeyeTV Webcast Event

    1st Annual Hedgeye Investing Summit

    The sharpest minds in investing discuss the latest market and economic developments and explain their investing implications.

Here’s another theme with meaningful impact on the footwear space, which I think helps Payless over the next two years. Wal*Mart has covertly indicated over the past month that it is increasingly downsizing its presence in the footwear space to concentrate on more profitable offerings.

Here’s the math… Wal*Mart did $306bn in the US last year. About 11% of that was apparel, footwear, and accessories. Only about 100bps-200bps was driven by footwear, which suggests about $5bn annually. For what it’s worth, Zappos generated $1bn in gross sales last year. Yes, Zappos is bigger than one might think.

But where Zappos and Wal*Mart don’t compare is on price point – where Zappos is over 2x the $9.98 average price at WMT.  Who does compete? You guessed it…Payless. Check out the table below. It shows that a quarter of Payless stores have a Wal*Mart within a mile radius. 43% have a WMT within 5 miles.

Let’s say Wal*Mart scales down footwear to 1% of sales over 3 years as it cycles through its remodel process. That suggests over $2bn is up for grabs. If I take it a step further and assume that 38% is within reach (within a 3-mile radius), then that’s $760mm. If PSS grabs only 10% of that, it would be a 3% comp alone. At a 30% incremental margin, we’re talking $0.23 per share. That’s off a base of $1.06 last year.

Talk about leverage…

 PSS: WMT The Share Donor - 7 31 2009 10 43 21 AM