It happens just two times a year: Thousands of buyers and top-level outdoor-industry execs flock to Salt Lake City for one of the sports market’s most heralded business-to-business trade events, Outdoor Retailer (OR).
And, as you know, whenever and wherever the footwear-and-apparel industry’s leading manufacturers, buyers and top executives convene, analysts are never too far behind.
Here, Footwear News recap three key things analysts are saying about brands, retailers and the overall marketplace after attending the Outdoor Retailer Winter Edition, held Jan. 6-10.
Some Retailers & Brands Were Feeling The Blues
It’s all about the weather.
If you haven’t observed the trend by now, weather is the major driver in the outdoor space, and this winter, that key variable has not been cooperating.
“We attended the Winter Outdoor Retailer show last week and, to no surprise, the mood was tepid, with attendance noticeably light,” wrote Canaccord Genuity Inc. analyst Camilo Lyon. “Given the warmer winter, most companies we met with spoke of the very obvious challenges experienced by cold weather-sensitive brands/retailers over the past few months. That said, nothing we heard relative to holiday trends was worse than we expected.”
Citi Research analyst Kate McShane also felt the melancholy vibe from the show’s attendees.
“Weather woes continue to weigh on the space. Stocks have been under pressure since October on a warmer Q4 ’15 (after two very cold winters),” McShane wrote. “Retailers at the show this week were generally pessimistic on December, with specialty retailers in the Northeast broadly pushing out spring deliveries and growing potential for excess spring inventories.”
But warmer temperatures may not bode as negatively for fall ’16 as many anticipate, McShane explained, “since a colder January tends to help clear inventories and create more opportunities for upcoming open-to-buy.”
Many analysts returned from OR with a host of downward-adjusted estimates for the brands they viewed and met with. Sterne Agee CRT analyst Sam Poser was upbeat on Under Armour overall, noting that its “fundamental, long-term growth prospects are intact,” yet weather woes led him to pare down estimates for Q4.
“We are reducing our 4Q15 [earnings per share] from 49 cents to 44 cents, versus consensus estimate of 47 cents,” Poser wrote. “We now expect revenue growth for 4Q15 of 23.1 percent ($1102M), compared with our prior estimate of 26.7 percent growth.”
Meanwhile, Lyon downward-adjusted Q4 estimates for VF Corp., Columbia Sportswear and Under Armour.
“Given the well-known winter-related challenges this past holiday season, we believe it is prudent to adjust our Q4 estimates down,” Lyon wrote. “We are lowering Q4 [EPS] estimates on VF Corp. by 1 cent; Under Armour, by 1 cent; and Columbia Sportswear, by 2 cents. That said, we believe the stocks have priced in much of this Q4 softness, and arguably some moves have been more severe than others.”
Lyon reiterated his buy rating on VF Corp. and Under Armour and attributed the bulk of any weakness at the three firms to unfavorable weather rather than brand issues.
Some Brands Remain Robust
“From an innovation perspective, we were impressed by the platform expansion of North Face’s Thermoball, as well as Under Armour’s deeper expansion into the category via the upcoming launch of its Reactor outerwear line,” Lyon wrote.
Poser also sang the praises of Under Armour, noting that the stock is his number one pick for long-term growth but, unsurprisingly, reminding investors that the “balmy weather” over the holiday shopping season negatively impacted sales of fleece and base layer apparel.
“[Under Armour’s] fundamental growth story is in great shape,” Poser wrote. “The company is on track to beat its planned 25 percent revenue [compound annual growth rate] through 2018.”
McShane was also optimistic about several brands, including VF Corp.’s Timberland and The North Face. McShane noted that VF continues to work toward positioning The North Face’s as “a year-round brand with versatile products that cater to all aspects of consumers’ increasingly active lives,” while Timberland is also “successfully translating into a year-round brand, with improving product and marketing.”
McShane also highlighted Under Armour’s growing momentum in the space — “the brand is tackling the outdoor market proactively, with a more aggressive offering of transitional outerwear, hiking/trail footwear and snow-sports apparel than we have seen to date,” the analyst wrote.
On Columbia Sportswear, McShane noted that “the company’s increase in outlet stores (85 now) will help mitigate warm-weather risk, with higher-margin clearance through owned direct-to-consumer, versus traditional off-price channels.”