Overheard on Wall Street: Athletic-Shoe Competition Heats Up

Memorial Day is around the corner, but as we all know, Wall Street doesn’t take vacations. As we head into the holiday weekend, FN has taken the temperature of the industry, and rest assured, you’ve come to the right place for all of the Street’s footwear buzz.

This week, it’s all about the competition in athletic footwear. Read on for the scoop.

Skecher’s USA Inc.
Skechers is on a winning streak.

The Manhattan Beach, Calif.-based company continues to make headlines as market research company NPD Group’s latest report showed the company edging out Adidas for the No. 2 spot, behind Nike, in the sports-footwear market.

Industry insiders have been singing the praises of the company’s continuous product flow, wide assortment of colorways/styles and affordable pricing. The company’s share price also recently surpassed the $100 mark — a milestone for the brand.

“Skechers has had strong growth in many categories, but the biggest impact came from walking and training,” said Matt Powell, a sports-industry analyst at NPD Group. “If Skechers maintains its current growth rate, it will be hard for any brand to catch [up with them].”

Echoing the positive industrywide sentiments about the brand, Susquehanna Financial analyst Christopher Svezia upped his estimates and price target, citing “a combination of strong current sell-through and what this should mean for orders in the back half and Spring 2016.”

“Weekly brand sales remain near the top among its peers, and we feel retailers will continue allocating open-to-buy dollars for the balance of the year,” wrote Svezia. “We suspect this will continue to benefit the international sales engine in FY15 and into FY16. Below sales, we believe investors are beginning to appreciate inventory management, strong operating leverage and underlying gross margin performance.”

Nike Inc.
Jefferies’ consumer analysts initiated coverage for Nike this week, with a price target of $120 and a “buy” recommendation for the footwear-and-apparel giant.

While there has been some musical-chairs action among the second-, third- and fourth-ranked power players — Adidas, Under Armour Inc. and now Skechers — Nike has been unrelenting in its ability to hold on to the top spot.

“We view Nike as a solid long-term play for investors seeking large-cap growth, with mid-teens total return potential and a call option for accelerated shareholder friendly moves,” the Jefferies report noted. “Meanwhile, secular industry strength, growth catalysts across categories/geographies and margin expansion conceivably beyond prior peaks lend potential for EPS upside to FY17.”

The report also detailed survey findings that revealed “a continued strong preference for the Nike brand despite rising competition.”

Jefferies’ survey found that 47 percent of respondents chose Nike as their favorite athletic brand, versus 9 percent for Under Armour and 8 percent for Adidas.

For footwear specifically, Nike beat out its competitors, at 40 percent, with Adidas coming in second place, with 9 percent.


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