Retail: 57
1.47%
Retail: 183
+3.05%
PRESENTING SPONSORS
Monday, November 5, 2018
Volume 2, Issue No. 43

FOOTWEAR INSIGHT
Moody’s: Apparel/Footwear Segment on Upswing

Under Armour says its North American business has stabilized.

The investors service Moody’s has changed its outlook on the U.S. footwear and apparel industry to “positive” from “stable,” citing revenues and profits that have begun to accelerate at a faster rate than it had estimated. Moody’s is now forecasting 8-9 percent operating profit for the segment in FY18 versus prior guidance of 3-5 percent as industry sales increase 6-7 percent. There will be some moderation in the sales growth rate in FY19, according to Moody’s, with an increase of 4-5 percent. The apparel outlook includes international sales, which have been growing well in Asia for many brands. Expected operating profit expansion is being fueled by a number of factors, including cost savings initiatives, acquisition synergies, lower inventory clearance activity and better U.S. apparel retail conditions overall.

Moody’s cites several industry players in its upgrade report. Nike should benefit further from a new product pipeline and DTC growth; VF Corp. is expected to generate continued growth at Vans, The North Face and its Work segment; Under Armour is starting to emerge from recent challenges and reap benefits from its restructuring and PVH Corp. should continue its strong results due to solid product offerings and marketing.

Elsewhere,

Under Armour, whose Q3 revenues beat the Street forecast by $20 million and reported EPS was nearly double the consensus, is confident that its North American business has stabilized despite a 2 percent revenue drop in the period. Key initiatives already undertaken include shortened lead times, substantially lowered inventory levels and improved distribution efficiencies. The company’s planned North American promotional days are projected to decline 33 percent year-over-year in 2018. For the FY, Under Armour is predicting a low-single-digit revenue in North America contrasted by 25 percent growth internationally.

Asics, whose four-pronged 2020 growth plan includes more focus on the U.S. performance running market, lost the equivalent of $8.5 million in the American region for the nine months ended Sept. 30. Regional revenues, hurt by weak sales in the U.S., were down 17.8 percent to $599.2 million. Parent ASICS Corp. is projecting a 3.8 percent drop in FY18 worldwide revenues to the equivalent of $3.41 billion.

Mizuno has a new brand positioning, Reach Beyond, that will set the tone for the brand’s marketing and communications globally. (See video below, in Tubes of the Week).

FOOTWEAR INSIGHT
New Balance Lands New CEO, U.S. Defense Contract

New Balance was the official footwear and apparel sponsor of yesterday’s NYC Marathon.

Days ahead of the New York City Marathon and its second year as the official footwear and apparel of the race, New Balance revealed a transition in its senior executive suite and acknowledged its first 6,000 pair shipment of U.S.-made running shoes (950v2) to the U.S. Defense Logistics Agency. The shipment, after more than seven years of lobbying, are part of a $17 million, 92,000-pair contract that was awarded in March and will be completely delivered by the end of 2019.

New Balance veteran Joe Preston, currently chief commercial officer in his 23rd year with the company, will become president and CEO of the privately held firm on Jan. 1, 2019. He will replace Rob DeMartini, the former P&G senior executive, who is leaving the Boston company after a dozen years. During his tenure, DeMartini helped New Balance regain leadership in the specialty running category, expand international sales to 65 percent of revenues, and grow its topline to $4.2 billion from $1.5 million in 2017. Additionally, DeMartini worked with U.S. government and industry officials to secure implementation of Berry Amendment legislation for athletic footwear.

The 950v2’s for U.S. military basic training recruits, consisting of midsoles made in NB’s Boston facility and materials from more than 15 U.S. suppliers, are being constructed by workers at New Balance’s Norridgewock, Maine factory.  

New Balance workers in its Maine factory will produce 92,000 pairs of U.S.-made 950V’s for military recruits.
The RW Baird managing director discusses the industry, M&A climate and offers insight on recent deals.

INSIDE RETAIL
Hibbett Sports Will Acquire City G.E.A.R.

City Gear, Oakwood Mall, Gretna, LA.

Hibbett Sports wants to get closer to urban customers and the trends that drive them to buy premium athletic footwear, apparel and accessories. The publicly-traded retailer, which operates over 1,000 doors mostly located in small and mid-markets, last week agreed to acquire privately held retailer City Gear for $88 million cash and a possible two-year earnout of an additional $25 million. The transaction is slated to close in early December.

With its 135 doors across 15 states with major store presence in Atlanta (19), New Orleans (12), Memphis (19) and Houston (12), City Gear generated $190 million in revenues for the FY ended Feb. 4, 2018. The privately-held Memphis retailer, which will operate as a Hibbett subsidiary under existing senior management led by CEO Mike Longo, is said to have a substantial Nike/Jordan business, generate 70 percent of its topline from footwear, and has produced mid-single digit comp growth over the last years while selling apparel labels such as AKU, Grindhouse and Billionaire Boys’ Club.

HIBB senior management, in talking to analysts about the pending deal, seems most attracted to the banner’s higher-margin sales and ability to connect with its “neighborhoods” through localized assortments and events, social media and in-store special features like a barber at Back-To-School.  City Gear ASPs average $90 versus low $60s at Hibbett. The acquirer hopes to leverage its learnings from City Gear’s operation into its 350 existing “fashion” doors and could also eventually convert some of those banners to CG. The deal is expected to deliver unspecified synergies and buying leverage for Hibbett Sports going forward. For its part, City Gear may need Hibbett’s assistance to increase ecommerce penetration that is currently pegged at about 2 percent, but that objective may prove difficult given the chain’s largely lower-income, cash-based customer demographic.

Elsewhere,

L.L. Bean is going north of the border through a new deal with Jaytex Corp. The Toronto company will distribute Bean products to Canadian retailers such as Mountain Equipment Co-op and Sporting Life, and open 20 L.L. Bean stores across the country over the next decade starting in Toronto in 2019. Bean wants to double its Canadian sales, currently about 2 percent of its topline, over the next 3-4 years.

Big 5 Sporting Goods, which missed Q3 revenues and EPS targets on a 2 percent drop in comparable store sales, says its actively testing pricing strategies “to be more responsive to an increasingly competitive retail environment” and is considering downsizing certain categories that are performing softly, including firearms. In footwear, the 436-door chain wants to “take advantage” of strength in the casual and lifestyle segments.

Quotable

“…I think most important, you feel the team. I think you see there’s a belief. And I want to be clear, we’re not declaring victory. We’ve got a lot of work to do.”
Kevin Plank, Chairman and CEO of Under Armour, Inc.

INSIDE FITNESS
Brunswick Fitness Spin-Off Set; Nautilus Readies Max Intelligence

Bowflex Max Trainer M6

Brunswick is moving forward with plans to spin-off its fitness segment, which includes Life Fitness and Cybex, by the end Q1/19. BC has tapped two of its outside directors to directly oversee the fitness management team and complete the separation in a timely manner. Through nine months, the division generated a 3 percent revenue increase to $750.6 million with operating income down 55 percent to $25.1 million for the period ended Sep. 29. U.S. fitness sales were off 1 percent for the nine months on lower Cybex sales and softness in several vertical channels, offsetting sales gains by strength products and new Life Fitness cardio products. The U.S. market is trending flat to slightly up for FY18 due to continued Cybex weakness and projected declines in Q4 sales to international markets, and certain value-oriented health clubs after a strong nine months for the segments. BC senior management confirmed its fitness segment has been affected by higher domestic steel costs due to tariffs on foreign-produced steel and is facing a slight headwind related to retaliatory tariffs on fitness equipment sold into China.

At Nautilus, the company missed its Q3 revenue target as it pulled back on spending around the Max Trainer ahead of a November launch of an upgraded, refreshed product. Total Q3 revenues were 3.3 percent higher at $91.1 million with the retail segment up 14.9% but Direct revenues off 14.8 percent. The retail improvement was driven by the mass retail and specialty commercial channels.

Later this month, NLS will roll out its new Max Intelligence Platform, a cloud-based adaptive coaching technology designed to help consumers reach their fitness goals, on the new Bowflex Max Trainer M6 and M8 cardio machines, Subscriptions to the service will be available at $149 annually or $14.95 monthly.  

OUTDOOR InsiGHT
Vista Outdoor Continues Transformation

The parent of gun maker Savage Arms, hydration brand CamelBak and Giro bicycle helmets is continuing to downsize, tighten its segment focus and trim debt. Revenues dipped 7 percent to $547 million in Q2 ended Sept. 30 as Vista completed the sale of its Bollé, Cébé and Serengeti eyewear brands. Proceeds were used to pay down debt. Senior management says demand for its golf and outdoor cooking products continue to grow; the hunting/shooting accessories is largely flat; and the competitive hydration market is largely flat despite some growth in packs.

Presently, VSTO is pursuing strategic options for its Jimmy Styks stand-up paddleboard brand; soliciting buyers for Savage, which generated nearly 19 percent growth in the period; and working on a deal to sublease its Farmington, UT headquarters and shift personnel to other facilities in Anoka, MN and Arlington, VA.

Earlier this year, under CEO Christopher Metz, Vista established a strategic plan to focus on four core categories—ammunition, hunting/shooting accessories, hydration bottles/packs and outdoor cooking products (Camp Chef)—and to focus on reducing costs through improved sourcing and production efficiency at its owned factories. The company has installed Vishak Sankaran as president of its Bushnell unit and Greg Williamson as president of CamelBak.  

FOOTWEAR INSIGHT
Canada Goose Gets Quacking on Footwear, Buys Baffin

The publicly traded, premium outerwear company Canada Goose took another step forward in extending its brand reach last week by acquiring Canadian boot company Baffin for C$32.5 million ($24.8 million). GOOS will keep Ontario-based Baffin operating independently but will lean on its expertise in design and developing performance boots to eventually enter the footwear segment with its own Canada Goose branded products but a timetable hasn’t yet been established.

In the meantime, Canada Goose is proceeding with its expansion strategy to become a three-season lifestyle brand with new lighter weight knitwear and rain gear products with an established global network of 20 owned brand stores. This holiday season new Canada Goose retail stores will open in Montreal, Vancouver and Beijing, joining established doors in Boston, Calgary, Chicago, Hong Kong, London, New York, New Jersey and Tokyo. The company has also established an ecommerce sales partnership with China’s Alibaba Group as it aims to greatly expand its brand presence in that market.    

Convening at ComplexCon

Top: 2018-Takashi Murakami - Armen Keleshian. Bottom left to right: Wuz Good, Vince Staples. Photos courtesy ComplexCon.
Thousands flocked to Long Beach, CA over the weekend for ComplexCon, a convention celebrating everything youth culture hosted by Complex magazine. New, limited-edition kicks, trendy apparel labels and rappers were everywhere. Allen Iverson dropped his first kicks in four years. The two colorways for Reebok were sold out immediately. G-Eazy was hanging with Puma, which took brand fans to one of the most memorable hangouts in the ’90s—the mall, for the release of their new RS-X sneaker. Pharrell Williams, who has a lifestyle tennis line with Adidas, visited the Billionaire Boys Club booth for a book signing. Russell Athletic unveiled a hyper-limited release with rising designer Rhuigi Villasenor. Pusha T stopped by the Adidas booth to commemorate his limited-edition EQT collaboration, and Fila’s Grant Hill joined Victor Cruz, Young Dirty Bastard and Shiggy at HBO’s barbershop experience to celebrate “The Shop,” a new unscripted series on the network from Nike’s LeBron James and Maverick Carter. Vans paid tribute to NASA with its space gray, skate voyager shoe and more exclusives at PacSun’s pop-up shop. Meanwhile, Nike sold out its limited-edition Sherbinskis Nike AF1 Low Bespoke.

What’s Hot? What’s New?

Eagle Creek redesigns its Cargo Haulers Duffel series for both functionality and sustainability with new PVC-Free TPU fabrics. Backpack straps are now zip-away for storage during bag check-in and a new U-shaped lid provides easy access to the main compartment with a new removable mesh divider inside to separate contents. Available July 1, 2019 in three primary and two seasonal colors. MSRP: Ranges from $99-189

’47 and Carhartt have teamed with Mossy Oak on a limited-edition NFL collection of caps featuring Carhartt’s duck fabric and Mossy Oak’s Bottomland print. Available for 13 NFL teams, including Philadelphia, Seattle, Chicago and Denver. MSRP: $30-35.

Cleveland Golf is launching its new Beach SOFT putters, featuring the brand’s proprietary Speed Optimized Face Technology (SOFT), on Nov. 16. The putter is crafted from soft 304 Stainless Steel and available in 16 color selections with four color fill areas. MSRP: $130 plus $10 for color personalization.

The Buzz

Escalade generated a 32 percent increase in ecommerce sales during Q3 ended Oct. 6. Sporting goods sales into the mass and specialty channels were down 9.8 percent and 3.7 percent, respectively. Total Q3 revenues fell 2.6 percent to $43.96 million but operating income was 9 percent higher at $5.48 million. Quarterly net income rose 40 percent to $3.96 million.

IQ Brands, the Advance, NC socks and accessories company controlled by Huron Capital, recently acquired novelty sock maker Wheel House Designs based in Morrisville, VT. Gail Bourne, who founded Wheel House in 1989, will work with the company’s new parent. The deal marks the fourth add-on acquisition for IQ, formerly known as Socks and Accessory Brands Global. Prior acquisitions included: Top Sox, Twin City Knitting and IQ Brands.

Sports, Inc., which began launching fundraisers for their team dealer customers in October, is partnering with TeamWorks, Inc., an easy-to-use team fundraising application, to help schools and leagues raise money. In 15 minutes, a TeamWorks or Sports, Inc. rep can guide a team through the set-up process using pre-built fundraising templates. This month, TeamWorks will be a key exhibitor at Sports, Inc.’s team dealer show in Las Vegas.

Tubes of the Week

Mon, Aug 28, 2017
Vol 1, Issue No. 33
Numbers In Play
The Sports Insight Index is our opinion of what we think are the 30 most important public companies in the industry, 15 vendors and 15 retailers. Space considerations prevent us from tracking more, but we will make changes over time.
Index base of 100 is key to the closing prices of 12/31/14
Retail
Segment breaks its eight-week losing streak, fueled by double-digit improvement by two British entrants, Sports Direct and JD Fashion, and Hibbett (See story), which is acquiring urban chain City G.E.A.R, to push its score closer to 60. The Dow, ahead of the mid-term elections Nov. 6, rose more than 610 points for the period, or 2.4 percent. Dick’s, which reports Q3 results Nov. 28, sees ammo maker Battle Born Munitions sue it in federal court for breach of contract related to its supply contract for the Field & Stream brand. Kohl’s and Target (not in segment) will each commence the official holiday shopping season on Thanksgiving at 5 p.m. and keep its doors open all night into Black Friday. Kohl’s, which offered a limited selection of deals in-store and online on Nov.1, will customers more Kohl’s Cash after each purchase, encouraging a return visit. Walmart sues its former credit card issuer, Synchrony Financial, for $800 million as its Jet.com subsidiary begins selling limited assortments of Nike and Converse branded merchandise, including $75-100 shoes for Nike and $42.86 for Converse Chuck Taylor All-Star low-tops. Target will introduce “Skip the Line” checkout technology during the holiday season.
Brands
Segment breaks out of a rut and surpasses ‘180’ mark again with a nearly 3.6 percent increase for the period. Under Armour, whose North American business appears to have stabilized, and Deckers Brands are the biggest gainers. GoPro tells Wall Street that higher December promotions and its cheaper Hero7 Silver & White products may negatively affect revenues and margins in Q4. Callaway, which reported a 29 percent increase in 9-month U.S. sales, says acquisitions TravisMathew and OGIO are performing well. Deckers’ Hoka One One brand, which generated a 28 percent increase in Q3 sales to $52 million, recently served as the official sportswear partners of the Cardiff Half-Marathon in Wales. Adidas planned to use an augmented reality platform at ComplexCon over the weekend in Long Beach, CA to release exclusive new sneakers to attendees, including the DBZ Frieza Yung-1 and Nerd HU NMD. The Three Stripes is slated to report third quarter results on Nov. 8. Nike has begun introducing its ‘City Edition’ NBA jerseys. Columbia Sportswear’s prAna brand, on healthy full-price ecommerce and U.S. wholesale growth, generated an 8 percent revenue increase in Q3. Puma names Havas Media as its new global agency partner for media buying and planning, effective Jan. 2019.

RETAIL: 59

40.53%

BRANDS: 182

81.69%

Weekly Review

Retail Name (Ticker Symbol)
Close on 10/25/18
Close on 11/01/18
% change over week
Big 5 Sporting Goods (BGFV)
BGFV
$4.67
$43.99
-14.56%
Sports Direct (LON: SPD)
SPD
$359.44
$433.58
+20..63%
Camping World (CWH)
CWH
$18.91
$18.75
-0.85%
Dick's Sporting Goods (DKS)
DKS
$32.85
$35.85
+9.13%
JD Fashion (JD)
JD
$439.75
$545.03
+23.94%
Foot Locker (FL)
FL
$45.78
$47.94
+4.72%
Genesco (GCO)
GCO
$42.57
$44.02
+3.41%
Hibbett Sports (HIBB)
HIBB
$16.45
$18.53
+12.64%
Kohl’s (KSS)
KSS
$73.93
$75.62
+2.29%
Macy’s (M)
M
$33.09
$34.59
+4.53%
Sportsman’s Warehouse (SPWH)
SPWH
$5.09
$5.21
+2.36%
Shoe Carnival (SCVL)
SCVL
$40.23
$40.56
+0.82%
Tilly’s (TLYS)
TLYS
$17.36
$17.48
+0.69%
Walmart (WMT)
WMT
$99.18
$100.58
+1.41%
Zumiez (ZUMZ)
ZUMZ
$23.40
$23.26
-0.60%
TOTAL
TOTAL
$1,252.70
$1,444.99
+15.35%
Brand Name (Ticker Symbol)
Close on 10/25/18
Close on 11/01/18
% change over week
Acushnet Holdings (GOLF)
GOLF
$23.74
$25.26
+6.40%
adidas (ADDYY)
ADDYY
$117.79
$116.69
-0.93%
Amer Sports (AGPDY)
AGPDY
$38.88
$37.20
-4.32%
Callaway (ELY)
ELY
$21.52
$22.00
+2.23%
Columbia Sportwear (COLM)
COLM
$87.70
$91.27
+4.07%
Deckers Brands (DECK)
DECK
$108.95
$131.72
+20.90%
GoPro (GPRO)
GPRO
$6.13
$7.18
+17.13%
lululemon (LULU)
LULU
$137.22
$144.17
+5.06%
Nautilus (NLS)
NLS
$12.93
$12.48
-3.48%
Nike (NKE)
NKE
$73.10
$76.79
+5.05%
Puma (PUMA)
PUMA
$510.00
$505.00
-0.98%
Skechers (SKX)
SKX
$26.52
$28.87
+8.86%
Under Armour (UA)
UA
$17.03
$21.11
+23.96%
VF Corp. (VFC)
VFC
$79.38
$85.12
+7.23%
Wolverine Worldwide (WWW)
WWW
$33.60
$35.97
+7.05
TOTAL
TOTAL
$1,294.49
$1,340.83
+3.58%

Sports Insight Extra Podcast Series