Can Small-Cap Footwear Outrun a Recession?
article , video 09-17-2019

Can Small-Cap Footwear Outrun a Recession?

PM Jay Kaplan makes his case for footwear stocks and details a quality holding.

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Footwear is a really interesting investment, almost all the time, especially now though. Historically, women buy more shoes than men, in good times and bad times, so it tends to be very recession resistant. It’s a low-cost way to improve a wardrobe. But the shoe business right now is under a cloud, and I think it’s under a cloud because of tariffs.

The good companies, I believe, over the next year or two have a number of ways to offset that. They’re going to get concessions from their overseas manufacturers, they’re going to move production away from China to other countries, and they’re going to raise prices. I think the companies are very adaptable. I think the market really doesn’t appreciate that, and that’s part of why you’re getting great companies at a discount right now.

One example would be Designer Brands. It used to be called DSW for their DSW stores, but they did a large acquisition that’s going to help them source their own private label product, which is very important in the shoe business and should really help them improve their profitability. Some of the other great things they’ve done: they’ve put kids shoes in all their stores, so that mom can now buy shoes for the kids, and they’re experimenting with nail bars. They want to make themselves more relevant, so they can’t be disintermediated by Amazon.

 

ROYCE TOTAL RETURN FUND

 

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the persons speaking as of July 10, 2019 and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

The performance data and trends outlined in this presentation are presented for illustrative purposes only. Past performance is no guarantee of future results. Historical market trends are not necessarily indicative of future market movements.

Percentage of Fund Holdings As of 6/30/2019 (%)

  Designer Brands Cl. A

Royce Capital Fund - Small-Cap Portfolio

2.1

Royce Dividend Value Fund

1.0

Royce Pennsylvania Mutual Fund

0.2

Royce Small-Cap Value Fund

2.2

Royce Total Return Fund

0.4

Company examples are for illustrative purposes only. This does not constitute a recommendation to buy or sell any stock. There can be no assurance that the securities mentioned in this piece will be included in any Fund’s portfolio in the future.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money. Smaller-cap stocks may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.)

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