By Teresa Rivas

Mark Reichel has always prioritized his health and being an involved parent and the two rarely came into conflict. Until Recently. But after a game of playground tag led to a twisted ankle, he found himself auditioning new sneakers that would allow him to stay on top of both goals while he healed.

The consultant and father of two found he had more choices -- and more chances to tailor his kicks -- than ever before, swapping between On Cloud, Brooks, and Hokas with custom inserts from his local running shop. "There are so many different options, and philosophies, from minimalism to maximalist giant cushions of foam," he says. "I'm fascinated by all the innovation, and if they look distinctive, all the better."

Reichel isn't alone. At a time when dad sneakers, sandals with socks, and Crocs are on trend, many people are more concerned with how shoes feel than how they look. Although the pandemic might seem like a distant memory, its influence on footwear has remained: Comfort still reigns supreme, even as apparel trends, like trousers replacing Coved-era loungewear, have evolved. The New York Times declared comfortable shoes the "secret weapon" of celebrity stylists earlier this year.

The upshot is that although fashionistas have embraced real pants once more, "we've had a hard time letting go of the comfortable shoes," says Gabriella Santaniello, founder and CEO of retail consulting firm A Line Partners.

Going-out wear includes fancy sneakers, she notes, and she now exclusively wears flats or kitten heels at most. "Even if you look at some of the trends in high heels, it's all about the platforms with a chunky heel," like those popularized by pop singer Sabrina Carpenter, which are more comfortable to wear than stilettos, she says.

Amid this triumph of function over form, the biggest winners have been relatively new entrants that boast extreme comfort, innovation or a combination thereof. Deckers Outdoor Corp., which owns Hoka and Ugg, has seen its shares rocket some 86% higher this year, while On Holding, the Switzerland-based company whose sneakers feature distinctive perforated soles, uncluttered designs, and a stacked-letter logo, has soared 109%.

It isn't just sneakers either. High expectations and a downbeat outlook put the brakes on the rallies seen by Birkenstock and Crocs, respectively, in recent months, but both are still up double digits this year. Birkenstock is still up nearly 65% since its October 2023 initial public offering.

"Never has there been a time since I've been doing this when so many different brands, and especially sneaker brands, are sharing the space," says Santaniello. "Before it was just Nike or Adidas and it bounced back and forth between those."

That is reflected in the stock performances of these traditional powerhouses. Although American depositary receipts of Adidas are up 19% this year, they have never recaptured their pandemic-era highs, and have gone basically nowhere since early 2022. Nike has had a terrible 2024, tumbling 29%; Barron's optimism that the stock had bottomed in the summer turned out to be wishful thinking.

The reality is that "ugly shoes" have more effectively captured the zeitgeist across age groups and demographics.

"You don't see a lot of runners moving to Nike; they're moving away from Nike," says Lamar Villere, partner and portfolio manager at Villere & Co., which owns On stock. For his part he runs in Hokas and walks around in Ons.

"For a while, I was the only one in my household [wearing Ons], but then I noticed my kids -- with no prompting from me -- all started wearing them, the same white and gray pairs. They don't want the flashy Instagram shoes Nike has been selling," Villere says. "As a portfolio manager it's fun to be ahead of the investment curve but it's even more fun for a dad to beat his kids to the punch on the trend front, especially because they're teenagers. That is a moving target. So I'll take both wins."

Plenty of analysts agree. Eighty-eight percent of analysts tracked by FactSet have a Buy rating or the equivalent on On. More than 70% like Crocs and 85% are bullish on Birkenstock. Deckers looks like the outlier, with just 54% rating it a Buy, closer to the 50% that have that rating on Nike and Adidas.

Needham analyst Tom Nikic reiterated a Buy rating on Deckers, while raising his price target by $8 to $226 after the company's product open house earlier this month. The "Hoka innovation engine continues to hum," he wrote at the time. "Ugg continues to evolve to a true global lifestyle brand."

That said, ugly doesn't come cheap. Deckers and On trade at 34.5 times and 56 times forward earnings, respectively and Birkenstock comes in at 32 times. Only Crocs, at less than 9 times, could be considered in bargain territory, although investors have to deal with a lower earnings outlook.

All fashion is cyclical, so one day trendsetters will likely trade in their sneakers for stilettos. Yet for now, shoe makers on the cutting edge of comfort are making the sidewalk their catwalk.

Write to Teresa Rivas at teresa.rivas@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 24, 2024 02:00 ET (07:00 GMT)

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