Is The Athletic Industry Heading Toward A Slowdown?

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Millennials have embraced running for both fun and fitness.
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Another week has brought more double-digit gains in athletic footwear sales. According to Citi Research analyst Kate McShane, total U.S. athletic footwear point-of-sales were up 13.2 percent year over year in the third week of July, with casual athletic sales continued to dominate the category, rising 22 percent.

While this is good news on the surface — and perhaps a familiar story line for the past year — a new report by UBS Investment Bank analyst Michael Binetti suggests that there is evidence that the U.S. athletic category has peaked and could be headed toward a downturn.

Most retailers we’ve met with lately, [Ross, Kohl’s, Target and TJX Companies], have called out athletic apparel/footwear as a key growth category for back-to-school and holiday ’16,” Binetti wrote on Thursday. “But Nike’s North America futures slowed to [gains of] 6 percent in the May quarter, and Under Armour is guiding for revenue growth to slow to 21 percent year-over-year in 2H16 versus 29 percent in 1H16.”

Fueling the debate, Binetti added that his recent meetings with a former chief merchant from Dick’s Sporting Goods and bankrupt sporting goods seller Sports Authority suggest that nonathletic retailers that have recently added athletic merchandise may be planning to reduce footage dedicated to the category in 2017.

Still, Binetti has found a host of evidence to the contrary and believes that “rather than a reversal of positive trends,” slower athletic growth rates are mostly due to excess inventory stemming from 2015’s tough holiday season as well as “cautious orders” from retailers that struggled during the previous year.

Meanwhile, recent sporting goods bankruptcies — Sport Chalet, Sports Authority and City Sports all shuttered in recent months — had exacerbated things, the analyst added.

We believe Sports Authority’s bankruptcy is nearing the final stages — which should remove an overhang to industry-wide full price selling (a positive for Nike and Under Armour),” Binetti wrote. “For Under Armour, new distribution launching at Kohl’s (in stores 1Q17) can help replace a Space Authority revenue gap in the near term, and the launch of the new Under Armour Sportswear category should support a base case to sustainably reaccelerate [revenues] toward its 25 percent long term revenue growth target by mid ’17.

And, with Dick’s snapping up 31 Sports Authority stores as it seeks to penetrate high-profile markets such as California and New York, Binetti says there are several new opportunities for both Nike and Under Armour that have yet to be tapped.

Nike and Under Armour presentation is much better at Dick’s than at Sports Authority — which didn’t have the capital to support productivity-boosting shop-in-shops (Dick’s has Nike’s Field House and Under Armour’s Blue Chip),” Binetti wrote. “Dick’s also purchased the list and full transaction history of Sports Authority’s Loyalty customers — which should facilitate a rapid re-routing of the Sports Authority consumer to Dick’s in coming months and help reverse recent distribution volatility for the brands.”