Under Armour Inc. has made a string of strategic investments in the right mega-athletes, yielding major payoffs in Q2. Its endorsement of NBA League MVP Stephen Curry helped the Baltimore-based firm post 29 percent revenue gains, driven by a 40 percent year-over-year jump in shoe sales. Its other endorsees — principal ballerina Misty Copeland and 2015 Masters-winning PGA golfer Jordan Spieth — along with the company’s growing international momentum, bode well for Under Armour. And that doesn’t even include the untapped potential of its 140-million-user Connected Fitness platform.
Meanwhile, Skechers USA Inc. continues to surpass market watchers’ increasingly high expectations. Just after announcing a stellar second quarter last week, the firm’s share price soared, gaining $20 in 24 hours. In that headline-making quarter, Skechers showed considerable gains in revenues and profits, driven by 60 percent growth in international, which now represents 30 percent of total sales.
Given the increasingly intense competition in athletic footwear, many are speculating that the industry could be on the verge of a major shake-up.
Should longtime leader Nike Inc. be shaking in its Lebron 12 sneakers?
Not quite, said industry experts.
“While Skechers and Under Armour have potential to grow and increase their share of the pie if they execute well, Nike would have to stumble pretty badly for Skechers or Under Armour to surpass Nike in market share — even in 10 years,” said B. Riley & Co. LLC analyst Jeff Van Sinderen.
Matt Powell, a sports-industry analyst with NPD Group, agrees. Both analysts noted that the growing companies have a better chance to snatch share from smaller brands than they do from Nike.
“Under Armour and Skechers are on a terrific trajectory — their growth potential is really great for the next couple of years, and I think the gap [between Nike and other brands] can close,” said Powell. “But my gut [feeling] is that the market share that Skechers and Under Armour take won’t be coming from Nike — it will probably be coming from other brands in the market.”
And what about that huge jump in Skechers’ share price last week? The stock is currently at around $148, and its price target is now $160 or higher by much of Wall Street’s estimates. Nike’s share price is around $114, and Under Armour’s is about $98 — not too far behind Nike’s.
“Skechers and Under Armour’s share prices may have risen faster than Nike’s share price recently, but [we] just need to be cognizant of the market capitalization and growth profiles of these companies. For example, Skechers at $148 does not have a larger market capitalization than Nike at $114,” explained Van Sinderen.
In fact, Van Sinderen said, the opposite is true.
“Based on recent stock prices, Nike’s market capitalization is round $98 billion, while Skechers’ market capitalization is around $7.6 billion, so the equity market is valuing Nike at more than 10 times where the market is valuing Skechers,” said Van Sinderen, adding that Under Armour’s market capitalization is roughly $20 billion.
While it seems fair to surmise that they’re not exactly on Nike’s tail, experts say, looking ahead, they remain optimistic about Under Armour and Skechers.
“We’re in the golden age of the sneaker business — it’s just ridiculously good everywhere we look,” said Powell. “You could argue that more brands should be benefiting from this place we’re in.”