Piper Sandler Upgrades Steven Madden, Downgrades Crocs on Footwear Trends

Piper Sandler has upgraded its rating for Steven Madden (SHOO.US) from "neutral" to "overweight," citing favorable fashion trends and the diminishing impact of tariffs. The firm also raised its price target for the footwear designer to $40 per share. The upgrade is largely based on the potential of the Kurt Geiger brand, which, despite having a low market penetration in the U.S., is seen as a unique and high-end brand with significant growth prospects. The brand is positioned differently from competitors like Coach, Kate Spade, and Michael Kors, and Piper Sandler's chief analyst, Anna Andreeva, expects it to become a $1 billion brand in terms of annual sales.

Andreeva noted that while brand awareness in the U.S. is currently low, consumer experience with the brand's interactive metrics could significantly boost its recognition. She also highlighted the brand's potential to become a $10 billion brand in the future. Meanwhile, Piper Sandler downgraded Crocs (CROX.US) from "overweight" to "neutral" and lowered its price target by 21%. The downgrade is attributed to changing consumer preferences towards more formal footwear, demand elasticity, and declining interest in the HEYDUDE shoe line.

Andreeva expressed concern that the end of Crocs' collaboration with celebrity Sydney Sweeney in 2025 could require additional marketing efforts. She also mentioned that leadership changes could have a negative impact. Overall, the footwear market has seen double-digit growth in clog sales since 2022, with this trend expected to continue until 2025. However, Crocs' clog sales are projected to stagnate in 2024, with a 12% decline in North American sales expected this year. Birkenstock (BIRK.US) continues to gain market share, with its market penetration doubling from fiscal year 22 to 25, reaching 40%.

For the current quarter, Crocs anticipates a 9% to 11% decline in revenue and a 170 basis point decrease in operating profit margin due to announced tariff measures. Google search trends indicate a 23% decline in interest for Crocs, a 2% decline for Birkenstock, and a 61% increase in interest for flat shoes. While this trend is positive for the category, it poses challenges for Crocs. Andreeva warned in her report to clients that the waning popularity of Crocs' shoe lines and the slowing growth of the category could signal a weakening of the brand's overall growth momentum.