Retail: 55
8.67%
Retail: 181
-0.39%
PRESENTING SPONSORS
Monday, October 29, 2018
Volume 2, Issue No. 42

BREAKING
Nike’s Flex Exit May Signal Strategy Shift

Nike HyperAdapt 1.0 'Tinker Blue'

Nike’s efforts to advance innovation within its manufacturing supply chain and sharply reduce raw material and labor costs are moving forward without a key partner. Publicly-traded company partner Flex Ltd. last week disclosed that its one-million-square-foot Nike footwear manufacturing operation in Guadalajara, Mexico, opened in 2016, is winding down for a Dec. 31 closure that will cost it $30 million in exit costs.

“…We have worked hard with Nike to make our footwear operation in Mexico technically and commercially successful,” Flex CFO Christopher E. Collier told analysts Oct. 25. “In recent weeks, however, it became clear that we were unable to reach a commercially viable solution with Nike…”

Three years ago this month, Nike announced a partnership with Flex, promising the relationship would accelerate its vision to bring advanced innovation to its manufacturing supply chain to enable products “to reach consumers more quickly, with customized solutions and increased performance innovation.”

The Nike-Flex relationship began with the testing of automation techniques and disruptive technologies at Flex’s Milpitas, CA campus and a product customization program near Nike’s Memphis distribution hub. Known for its work making Fitbits and servers for Lenovo, Flex worked on numerous projects to improve automation and footwear and apparel production line speed. Among them: a new method to move cloth to cutting machines; the issuance of five patents related to footwear automation; the creation of a solution for making Nike’s Flyknit shoes that evolved into NIKEiD; and a separate launch of Nike’s HyperAdapt technology.

According to Citi research, Nike was poised to increase its profit by 29 percent on its Air Max 2017 running shoe produced by Flex while reducing raw material costs and labor expenses by 20 and 50 percent, respectively.

Nike COO Eric D. Sprunk, talked about the company’s decision to partner with Flex during a Flex investor and analyst day in May: “…We thought if we brought somebody in from outside the footwear industry, it would be a catalyst for the manufacturing revolution, and would effectively raise the game for the entire industry in our source base…and that’s effectively what we have done.”

Earlier this year in April, Flex nicknamed its automation process and system for making shoes at volume, Solemente, and established three major objectives for getting the operation to “breakeven,” but missed a deadline for the third goal—a material supply chain that would enable it to fill its factory and make automation run effectively.

For its part, Nike wanted the Flex operation scaled to a point that would enable it to guarantee two-day deliveries in North America.

At this point, it’s unclear exactly what prompted the decision to exit the Nike- Guadalajara factory. Financial considerations? The end of a contract? A decision by Nike to take its Flex IP and learnings to other supply chain partners?

There should be more clarity in the weeks and months ahead.

INSIDE RETAIL
Retail Forecast Is Upbeat, But Challenges Loom

With the two-month holiday season commencing in three days, the outlook for U.S. retail is decidedly bullish. But potential new tariffs, higher labor and freight costs and rising interest rates may pose a threat to what consumers spend during the remainder of 2018 and into 2019, and what retailers are able to sell them.

Still, last week as the Dow experienced wild day-to-day swings in what some referred to as an “October correction,” both Moody’s and the National Retail Federation released positive forecasts on the U.S. economy and upcoming retail holiday sales. Citing an annual survey done in conjunction with Prosper Insights & Analytics, the retail trade group predicted a 4.1 percent increase in holiday sales to an average $1,007 per person. Consumer confidence, low unemployment levels and higher take-home wages are all positive contributing factors to the outlook, the NRF said. Earlier this fall, the group predicted Nov.-Dec. retail sales would rise between 4.3-4.8 percent to as much as $720.9 billion.

Moody’s, meanwhile, updated its retail outlook for the next 12-18 months to “positive” in a 16-page report. The investors service cited retail investments in ecommerce and improved operating efficiencies in predicting “healthy 5% to 6% growth” in retail sales this holiday season and 4-5 percent for the full year. Online purchases will surpass 20 percent of all retail sales over the next 5-6 years versus 14 percent currently.  

Meanwhile, the outlook for retail operating profit growth is 4.5-5.5 percent in 2018 and 5.5-6.5 percent in 2019.  But only some retail segments will drive that expected expansion. Led by online retailers, gainers in operating profit include off-price retailers such as those operated by TJX Corp., dollar stores and warehouse clubs. Apparel and footwear retailers, after producing a projected 2.5 percent drop in 2018 operating profit (up from a -8% decline in 2017), are forecast to rebound with a 3.0 percent OP gain in 2019 due to an improved shopping environment, lower inventory levels and cost-cutting benefits. Department stores, meanwhile, are project to have single-digit declines in operating profit in both 2018 (-2.1%) and 2019 (-1.7%) despite demonstrated improvements in same-store sales growth, inventory control and improved shopping efficiencies for its customers.

In alluding to various factors that could dampen its positive U.S. retail outlook, Moody’s said any higher tariffs on apparel and footwear imports from China would impact some retailers more substantially than others, citing Caleres and the parent of the Payless Shoe as two. But the effect of any higher duties on Chinese imports would likely be temporary, 1-2 quarters after implementation, Moody’s opined, suggesting retailers would obtain vendor concessions on pricing through renegotiated supplier contracts.  

The president of The Accessories Council talks retail, trends and an upcoming event with The Council for Leather Exports/India.

Footwear Insight
Apparel, Gross Margins Rising for Puma

While changes are underfoot for The Cat in footwear, including its recent entry into basketball and ongoing significant design shifts that will be evident in Spring 2019 collections, the brand has found renewed momentum in apparel.

Puma, which says its apparel is growing by double-digits in all geographic regions, particularly logo-ed wear but across all categories, is projecting the segment to be stronger than footwear in Q4. And apparel typically carries a higher gross margin than footwear, CEO Bjorn Gulden told analysts. In Q3 ended Sep. 30, Puma’s apparel business rose nearly 27 percent on a currency-adjusted basis to the equivalent of $551.3 million. Quarterly footwear sales were 6.1 percent higher to $637.4 million. Through the first nine months of 2018, company gross margins rose 150 basis points to 48.8 percent. Gross margin improved to 49.6 percent in Q3.

The company, which recently signed supermodel Adrianna Lima and added numerous international players to its roster of soccer endorsers, is forecasting full-year organic sales growth of 14-16 percent as EBIT comes in at least 32 percent higher year-over-year to a range of 325-335 million euros, up from previous guidance of 310-330 million euros.

On the footwear front, Gulden said the brand “created a lot of positive noise” from its basketball shoe re-entry that included the signing of nearly a dozen NBA players as Puma endorsers. The orange Clyde Court Disrupt was stronger in the East Coast cities of Boston, New York and Philadelphia and a bit weaker on the West Coast, although there strong sell-through at Big 5 Sporting Goods. A second color way will hit on Halloween with more colors on shoe slated to debut during the holiday season.

“We’re very happy from what we’ve seen (in basketball),” Gulden confirmed.

Elsewhere, Puma is aiming to have 10-12 footwear franchises in place over the next 10-12 months as the brand shifts away from Classics such as the Suede and Platform to “more aggressive shoe families.” Gulden is promising a “on steroids” iteration of The Thunder that is more bulky than the original, and he confirmed the company is re-launching its “Cell” visible technology from the 1990s on new styles in limited quantities. In retail, Puma expects its 30-40 percent growth rate in online sales to continue as it works through industrywide issues related to inventory and shipping. Also, Puma has 738 of its own retail stores currently, up 55 from a year ago, and will have 2,000 doors in China selling the brand, including stores from wholesale and joint venture partners, by year-end.

FOOTWEAR INSIGHT
Vans Eyes $5 Billion in Revenues By 2023

The topline objective for VF Corp.-owned Vans represents a five-year compound annual growth rate (CAGR) of 10-12 percent. In Q2 ended Sep. 30, Vans’ revenues rose 26 percent with “strong growth” across regions, channels and product categories. A 23 percent improvement in wholesale revenues was driven by strong Back-To-School results globally. Meanwhile, Vans’ Direct-To-Consumer sales were up 29 percent in the period, fueled by more than 55 percent growth in DTC digital. A brand sale increase of 38 percent in the U.S. outpaced all other regions. VFC is currently forecasting 18-19 percent revenue growth for Vans this FY.

“Common sense would tell you that it (topline growth) might moderate,” VFC President and CEO Steve Rendle told analysts earlier this month. “But I’d tell you, at this point, we just haven’t had evidence of that.”

Vans’ Q2 Americas’ growth of 34 percent in Q2 was bolstered by nearly 30 percent growth in apparel & accessories, a strong increase in heritage footwear and a doubling of volume for the brand’s Ultra Range. Wholesale revenues across the region were 40 percent higher with DTC gaining 31 percent. Vans’ apparel, which accounts for approximately 20 percent of all revenues, is growing at a rate faster than the brand, VFC CFO Scott Roe recently pointed out.

Besides possible moderating growth rate in H2, one potential pitfall for Vans going forward may be its reliance on China as a sourcing base, particularly if new tariffs from the Trump Administration affect footwear and apparel imports from that country. Recent research from Coresight, citing company reports, Wedbush Securities and the American Apparel & Footwear Association (AAFA), shows that Vans, at 73 percent of all production, is second only to Steve Madden (93 percent) in percentage of footwear sourced in China.

Coresight says it expects Nike (27 percent) to retain its footwear sourcing operations in China “because the country offers technical advancements in manufacturing and because Nike has already made significant investments in the country. It would be difficult for Nike to replicate operations at the same scale in other countries, as many have smaller average factory sizes.”

OUTDOOR InsiGHT
Canadian Co-Op Addresses Diversity in Great Outdoors

Mountain Equipment Co-Op, a 22-door outdoor Canadian co-operative of five million members based in Vancouver that was founded in 1971, last week released results of a study it commissioned that shows people of color in Canada spend 8 percent more time participating in outdoor activities than their white counterparts. Study findings also showed that people of color are more likely to participate in climbing (23% vs. 10%) and snow sports (17% vs. 10%) than white consumers.

MEC CEO David Labistour detailed the study’s findings in a letter to members, admitting the co-op has “underrepresented people of color in the outdoors” in its catalogues and marketing efforts and is committed to change.

Elsewhere,

• REI, for a fourth consecutive year, will close all 153 of its stores, process no online payments and pay more than 12,000 associates to #OptOutside with friends and family on Black Friday (Nov. 23). Additionally, the co-op will donate $1 million to the University of Washington that will study the link between human health and time spent outdoors within its new center of academic excellence.

• Polartec is supporting the North American launch of Houdini Sportswear, a Swedish company led by CEO Eva Karlsson that offers a collection of functional apparel. Both brands share a commitment to sustainability.

• Garmin Intl. is partnering with San Diego-based Fitabase in a collaboration that will enable researchers to access data from the brand’s wearables for deep analysis and accelerate digital health research.

• Grassroots Connect, the semi-annual buying show that attracts nearly 1,000 participants from independent specialty retailers, vendors and the outdoor industry community, will immediately precede the Outdoor Retailer Winter Market at the Colorado Convention Center next week (Nov. 4-7)  

Execs on the Move
Timberland Lands Global Creative Director

VF Corp.-owned Timberland is partnering with British designer Christopher Raeburn whose label of the same name is synonymous with responsible, intelligent fashion design. He will serve as global creative director for Timberland, steering the brand to a holistic approach across all product categories, marketing and in-store environments. Raeburn, who helped Timberland launch a Christopher Raeburn X Timberland apparel collection last week at the brand’s Fifth Avenue store in  New York, will work to elevate the brand’s commitment to responsible sourcing, inclusivity and community. Based in his London studio and traveling frequently to Timberland’s Stratham, NH global HQ and regional offices in Switzerland and Hong Kong, Raeburn will divide his time equally between his own brand and Timberland.

Elsewhere,

• Burton changes its executive structure, promotion John Lacy, president, to co-CEO with company co-owner Donna Carpenter. Jake Burton and Carpenter will live in Europe in 2019 to focus on the brand’s European business.

• Assos of Switzerland hires Derek Bouchard-Hall, CEO of USA Cycling, as CEO of the cycling brand, effective Jan. 1, 2019 with current CEO Phil Duff maintaining his role and responsibilities as Chairman of the Board.

• Macy’s promotes Shawn Outler, a 12-year veteran of the retailer who started as divisional VP and merchandise manager for sportswear in Atlanta, as chief diversity officer. She starts her new job in New York today.

• Columbia Sportswear elects Sabrina Simmons, former EVP and CFO of Gap, Inc. from 2008 until 2017, to its board. Big 5 Sporting Goods accepts the resignation of director Robert C. Galvin, who recently was named CEO, president and director of Iconix Brand Group.  

Fila Grants Hill Lifetime Deal

Basketball Hall of Famer Grant Hill has signed a lifetime contract with Fila, more than two decades after he first signed on with the brand. To launch the partnership, Hill will participate in Fila’s ComplexCon activation in November. There, the company will unveil details on an exclusive new line of products around him.

“FILA is proud to have been a part of Grant’s history, partnering with him when he was drafted into the league,” said Jon Epstein, president of FILA North America. “…Grant truly embodies the spirit of FILA, a brand that is synonymous with game-changers in sport and beyond. We look forward to Grant being an integral part of our move forward strategy in basketball.”

What’s Hot? What’s New?

Adidas introduces the 23-piece Statement Collection for women who take a versatile approach to training. Floral camo and geometric prints inspired by Stella McCartney are featured in the line that is inspired by the brand’s global collective, including athletes Dua Lipa, Hannah Bronfman and Karlie Kloss who take different approaches to working up a sweat. Available online currently, the collection will be in stores on Nov. 1.

Torque USA debuts a new TANK M4 All-Surface Sled, a successor to the brand’s TANK M2. The new model, available with a 30-day, money-back guarantee, utilizes a double braking system and is equally efficient in individual and group training since it does not require additional weights. Sold with Ultimate TANK Training Guide. MSRP: $1,450.

Louisville Slugger will be making 2018 World Series Champion bats with the logo and colors of the winning team the morning after the champion is crowned. Last week, the company that has made bats for every Fall Classic since 2003, produced and distributed souvenir bats for fans and commemorative versions for players, managers and coaches on Boston and Los Angeles.

The Buzz

Brooks Running closed its third quarter with global revenues up 29 percent, driven by a 32 percent increase in footwear. The Seattle company continued to thrive in the challenged U.S performance running market, taking share to hit the second market position in the category per The NPD Group. Double-digit revenue increases in the EMEA, Asia-Pacific and Latin America regions were major contributors to growth. Brooks projects further expansion in key markets overseas, driven by a brand relaunch in South Korea next August, a new launch in India and another in Mexico by the end of the year.

NSGA is currently accepting nominations for the Sporting Goods Industry Hall of Fame, which was founded in 1956. The deadline to submit completed nomination forms along with three letters of recommendation and other supporting materials is Feb. 22, 2019. Past inductees have included manufacturers, reps, retailers, team dealers and industry influencers, Names of all NSGA Hall of Famers and nomination forms can be found at https://www.nsga.org/events/recognition/hall-of-fame/. Contact Larry Weindruch at lweindruch@nsga.org with any questions.

Shimano continues to enjoy a “robust” fishing tackle business in North America despite the “non-neglible impacts” of Hurricane Florence that hit the U.S. East Coast. For the nine months ended Sep. 30, segment profit was up 25 percent to the equivalent of $60.6 million on 7 percent topline growth to the equivalent of $476.9 million. Meanwhile, the Japanese company’s Bicycle Components segment recorded flat profit for the nine months on 2 percent revenue growth to $1.78 billion.

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
Conflicting data is confusing. With the Dow on a crazy ride over the period, falling 2.4 percent or more than 605 points on Oct. 24 and rising more than 401 points or 1.6 percent the next day, multiple sources reported predicted a strong holiday season for retailers (See story). In Q3, the U.S. economy improved 3.5 percent as strong consumer spending offset concerns about trade. Nonetheless, rising interest rates and the possibility that key U.S. corporate earnings will decline in the months ahead, have some worried. Meanwhile, the segment had a declining week for an eighth consecutive week as three retailers reported double-digit percentage declines. Shares of Big 5, which reports quarterly results tomorrow, had the second-largest drop for the week. Camping World, whose shares fell more than 9 percent, now has at least three law firms pursuing class-action suits against it. Currency rate contributed to the share declines at JD Fashion and Sports Direct, which is the reported frontrunner to acquire the 60-door Evans Cycles chain in the U.K. from a private equity firm. Foot Locker hosted its 18th annual “On Our Feet” fundraising gala in New York with proceeds again earmarked for educational and youth initiatives supported by its foundation. Hibbett Sports’ shares were downgraded to “neutral” by both UBS and Susquehanna. Zumiez lands a “buy” rating from Jefferies.  
Brands
Segment was essentially flat for the week, but four of 15 stocks rose during the period. One was Puma, which achieved gains in apparel and in key Asian markets in Q3. Adidas rose nearly 4 percent and received a consensus “buy” rating from nine analysts in the same week an ex-senior staffer was found guilty in a college basketball bribery case in New York. Nike, which will soon introduce in-store digital features for consumers through its SNKRS app, is railed in a new book, “University of Nike: How Corporate Cash Bought American Higher Education” with details focusing on Phil Knight’s relationship with the University of Oregon president. The book has been criticized for numerous inaccuracies. FactMR reports that the global golf shoe market will hit $8.5 billion in 2022 after a sluggish CAGR over the next four years with the European Union as the largest market. Arc’teryx will deliver another FY of double-digit growth for parent Amer Sports. Stifel Nicolaus upgrades Columbia Sportswear shares to “buy” after the company reports double-digit topline Q3 growth in the U.S. on a high teens increase in Direct-To-Consumer and mid-single digit gain in wholesale. Deckers Brands is upgraded to “positive” by UBS after company reported Q2 results that included a 350 basis point increase in gross margin and 28 percent sales growth for Hoka One One to $52 million.  

RETAIL: 52

48.45%

BRANDS: 175

75.41%

Weekly Review

Retail Name (Ticker Symbol)
Close on 10/18/18
Close on 10/25/18
% change over week
Big 5 Sporting Goods (BGFV)
BGFV
$5.39
$4.67
-13.36%
Sports Direct (LON: SPD)
SPD
$412.54
$359.44
-12.87%
Camping World (CWH)
CWH
$20.85
$18.91
-9.30%
Dick's Sporting Goods (DKS)
DKS
$34.48
$32.85
-4.73%
JD Fashion (JD)
JD
$510.72
$439.75
-13.90%
Foot Locker (FL)
FL
$48.80
$45.78
-6.19
Genesco (GCO)
GCO
$42.53
$42.57
+0.09%
Hibbett Sports (HIBB)
HIBB
$17.77
$16.45
-7.43%
Kohl’s (KSS)
KSS
$71.45
$73.93
+3.47%
Macy’s (M)
M
$32.41
$33.09
+2.10%
Sportsman’s Warehouse (SPWH)
SPWH
$5.17
$5.09
-1.55%
Shoe Carnival (SCVL)
SCVL
$38.43
$40.23
+4.68%
Tilly’s (TLYS)
TLYS
$17.10
$17.36
+1.52%
Walmart (WMT)
WMT
$96.17
$99.18
+3.13%
Zumiez (ZUMZ)
ZUMZ
$22.06
$23.40
+6.07
TOTAL
TOTAL
$1,375.87
$1,252.70
-8.95%
Brand Name (Ticker Symbol)
Close on 10/18/18
Close on 10/25/18
% change over week
Acushnet Holdings (GOLF)
GOLF
$24.23
$23.74
-2.02%
adidas (ADDYY)
ADDYY
$113.39
$117.79
+3.88%
Amer Sports (AGPDY)
AGPDY
$39.71
$38.88
-2.09%
Callaway (ELY)
ELY
$23.48
$21.52
-8.35
Columbia Sportwear (COLM)
COLM
$87.89
$87.70
-0.22%
Deckers Brands (DECK)
DECK
$109.86
$108.95
-0.83%
GoPro (GPRO)
GPRO
$6.72
$6.13
-8.78%
lululemon (LULU)
LULU
$142.68
$137.22
-3.83%
Nautilus (NLS)
NLS
$12.93
$12.93
0.00%
Nike (NKE)
NKE
$75.60
$73.10
-3.31%
Puma (PUMA)
PUMA
$482.15
$510.00
+5.78%
Skechers (SKX)
SKX
$26.12
$26.52
+1.53%
Under Armour (UA)
UA
$17.14
$17.03
-0.64%
VF Corp. (VFC)
VFC
$87.09
$79.38
-8.85%
Wolverine Worldwide (WWW)
WWW
$35.44
$33.60
-5.19%
TOTAL
TOTAL
$1,284.43
$1,294.49
+0.73%

Sports Insight Extra Podcast Series

Nikki Barua

The old way of retail is dead, and there is a massive opportunity to re-invent, proclaims the CEO of Beyond Curious in Los Angeles.

Matt O’Toole

President of Reebok dishes on the brand’s mission and objectives from its headquarters in Boston.

Gabriella Santaniello

Retail expert dishes on what’s going right and wrong in industry today and weighs in on the Walmart vs. Amazon tussle.

Guy Yehiav

The CEO of Profitect addresses the right medicine for changing the paradigm of accountability—prescriptive analytics.

Pat Ryan

Batter Up! The global product director for baseball/softball at Wilson Sports details the new USA Baseball standard that took effect January 1 and what it means when you hit the store this spring looking for a new stick for junior.

Patrick Clark

President of Nextwave, a Buford, GA system integrator, discusses benefits of an on-demand apparel microfactory, a bridge to Just In Time manufacturing, from Sourcing at MAGIC in Las Vegas.

Shawn McBride

Ketchum Sports & Entertainment EVP talks Olympics—impact of three consecutive Games in Asia, social media, corporate guerilla marketing and drawing in younger consumers.

Tyson McGuffin

Tennis pro Tyson McGuffin, 28, talks about the rising popularity of pickleball and how he became a champion in the sport.

Bob Mullaney

The 20-year shoe and retail industry veteran, recently named president and CEO of RG Brands, dishes on the comfort footwear business and Barry’s iconic Dearfoams brand.