Retail: 53
8.86%
Retail: 175
+5.20%
PRESENTING SPONSORS
Monday, December 3, 2018
Volume 2, Issue No. 46

M&A / Outdoor Insight
Callaway Acquires Jack Wolfskin for $476 Million

Callaway has acquired Jack Wolfskin, a premium outdoor brand. photo: www.jack-wolfskin.com/travel

Callaway Golf under CEO Oliver “Chip” Brewer is continuing to pivot away from its singular and seasonal reliance on golf and may eventually change its corporate name to reflect the broader direction. The public company has spent more than $676 million on three acquisitions—OGIO (Jan. 2017, $75.5 million), TravisMathew (Aug. 2017, $125 million) and Jack Wolfskin—in the last 23 months in a foray into the broader active lifestyle category. Callaway will finance the transaction for the nearly 38-year old German outdoor brand with a term loan and close it sometime in Q1 after obtaining necessary regulatory approvals.

In Wolfskin, Callaway obtains a well-established, premium outdoor brand in the DACH region of Europe and in China but with little brand presence in North America where it will have to compete for market share with the likes of Columbia, The North Face, Patagonia and Arc’teryx among others. Jack Wolfskin apparel currently does have distribution on the recently launched Walmart Premium Outdoor store online. ELY will aim to leverage its operational infrastructure to broaden Wolfskin’s geographical footprint to include N.A., Japan and Korea, and grow the company’s FY performance to $400 million in revenues and $50 million in EBITDA over the next few years. Meeting those targets would push Callaway’s annual revenues over the $1.6 billion mark with $200+ million in EBITDA. Potential Callaway-Wolfskin synergies are projected in distribution, supply chain and marketing.

Now led by CEO Melody Harris-Jensbach, a former chief product officer at Puma and chief product/design officer for Esprit, Jack Wolfskin has had two ownership groups over the last seven years. Private equity firm Blackstone, which bought the business in Aug. 2011 for €800 million, handed majority control to lenders (Bain Capital, HIG/Bayside and CQS) in a debt for equity swap in July 2017 that lowered Wolfskin’s total debt level nearly 57 percent to about €110 million. Brewer says Callaway will invest in Wolfskin’s operations and marketing among other areas, and responding to an analyst, suggests the company may have been “under resourced” in recent years.

Producing both active outdoor (ski, hiking, cycling) and urban outdoor apparel and footwear, Wolfskin generated approximately $380 million in revenues and $40 million in adjusted EBITDA over the last 12 months. Apparel accounts for 77 percent of the topline, followed by footwear (13%) and equipment (10%).

Callaway’s biggest challenge with Wolfskin in North America may be establishing a strong distribution platform. With vendors becoming more reliant on the direct-to-consumer channel, many retailers, including Sportsman’s Warehouse and Dick’s (Alpine Design), are developing their own outdoor apparel brands. Specialty outdoor retailer’s willingness to take on another premium outdoor brand will be tested, and Callaway’s current exposure in that market is limited.

Trade Update
U.S., China Call Trade Ceasefire

The scheduled plan for the U.S. to raise tariffs on $200 million in China-made imports to 25 percent from 10 percent on Jan. 1, 2019, including on some sporting goods products, will not occur. At the G-20 Summit in Buenos Aires, Argentina Saturday, the U.S. and China agreed to table their respective confrontational discord for 90 days as they attempt to iron out some key trade differences.

In exchange for the U.S. agreeing to postpone additional tariffs, China said it would hike its purchases of U.S. industrial, energy and agricultural products to lower the trade imbalance between the two countries, and begin labeling fentanyl, the synthetic opioid tied to thousands of American drug deaths, as a controlled substance.

Ahead of the G-20, global economists had become increasingly concerned about the how impact of a protracted trade dispute between the two nations could continue rattling global financial markets and supply chains heading into 2019.

Commenting on the U.S.-China trade truce, Matthews Asia investment strategist Andy Rothman said, “The two sides appear to have had a major change of heart to move away from confrontation toward engagement. This changes the tone and direction of the bilateral conversation.”

Dow futures rose more than 400 points on the news ahead of Monday’s opening bell.

The National Retail Federation, in a statement, voiced its pleasure with the truce on tariffs, adding it hoped the pause would “lead to a positive resolution that removes tariffs altogether and improves U.S.-China trade relations.”

With the clock already ticking on another deadline, the world will be watching in Q1 to see if real trade resolutions between the U.S. and China can be reached.

In a separate trade matter, Pres. Trump is expected to formally terminate U.S. involvement in the North American Free Trade Agreement (NAFTA) with Canada and Mexico this month, likely forcing the new Congress’s hand in 2019 to approve the replacement deal, the United States-Mexico-Canada Agreement (USMCA) that includes more market access and a review provision every six years.

OOFOS executive and podiatrist discuss the rise of the brand and what makes it special to wearers.

Inside RetaiL
Dick’s Focusing on Fulfillment, Technology and Fixturing in 2019

Yeti display at Dick's Sporting Goods.

Dick’s Sporting Goods wants to have the ability to deliver ecommerce orders to the majority of its customers within two business days. To that end, the retailer is investing significantly in fulfillment, according to president Lauren Hobart, including the creation of dedicated ecommerce fulfillment centers in California and New York. The East coast facility will utilize robotics to accelerate automation and lower labor costs. The retailer, which experienced a 16 percent increase in Q3 ecommerce sales, is also able to fulfill and ship all orders from any of its stores.

As for its brick-and-mortar locations, Dick’s is developing new private label brands and testing a merchandise realignment in 10 locations. Virtually all hunt products were removed from those stores in favor of higher-margin baseball, licensed sports and outerwear products. CEO Ed Stack says it’s too early to address whether the test strategy will be expanded to additional doors in 2019, but he confirmed baseball is a “significantly higher margin business” than hunt. In six of the stores where baseball products have replaced hunt items, Dick’s has added batting cages and a fit station for premium bat purchases. Down the road, more experiential merchandising, perhaps one for soccer, could find their way into the chain’s stores.

On the matter of looming higher tariffs on sporting goods products, Stack says they concentrated in the retailer’s hard goods section. The go-forward strategy will be a combination of obtaining better pricing out of China, negotiating with vendors to absorb some additional costs and raising prices on unspecified products.

Stack declined to specify the retailer’s current exposure to tariffs, but commented, “…It’s not meaningful next year for us, but it’s going to come down to negotiations with the brands in the factories going forward to determine the impact.”

Dick’s overall Q3 revenues were down more than 4 percent to $1.86 billion, but merchandise margins were 213 basis points higher due to fewer sales of lower-margin hunt and electronics products, fewer promotions and an improved product cycle. The chain’s own Alpine Design outdoor apparel label debuted during the period and a house fitness brand is expected to launch in Q3/19.

Retail Round-Up
Hibbett Sports Completes Deal, Accelerates Tech

The small-town operator completed its 135-door City Gear acquisition in Q3 and closed 24 underperforming namesake doors during the period ended Nov. 3. And there are plans to close another 25 locations in Q4 for a total of 82 for the FY versus 30 openings.

Meanwhile, technology and ecommerce are receiving added focus. CEO Jeffry Rosenthal says ecommerce margins have improved significantly year-over-year as more full-price selling has replaced clearance activity. All stores introduced BOPIS and ROPIS (Reserve Online, Pick-Up in Store) in October. Subsequently, each feature has been added to the Hibbett app. As for Q3 sales specifics, total revenues declined 8.8 percent to $216.9 million and was partly impacted by the sale of company’s team division last December. Comps were up 0.1 percent. By category, apparel comps were up for a fourth consecutive period, gaining high single digits and driven by double-digit expansion in men’s. Accessory category declined mid-single digits with a challenge in socks offsetting strong gains by backpacks. Licensed fell high-single digits, although college and the NFL were improved and down only low-single digits. Team sports sales were off mid-single digits with positive gains in baseball, softball and volleyball unable to offset declines in fitness, basketball and football.

Elsewhere,

• Sportsman’s Warehouse, which reported 2.3 percent Q3 sales growth to $223.1 million and a comp decline of 0.5 percent for the period, will shortly direct its website visitors to a new site and URL at sportsmans.com. On the private label front, the specialty retailer is hoping to grow the segment to a high-single digit percentage of total revenues over time from 3.5-3.8 percent in Q3. During the period, SPWH launched its first private label workwear, Wasatch Outdoor. CEO Jon Barker says the outdoor specialty chain, which opened its 11th Golden State store in Milpitas, CA in August, witnessed “more normalcy” in firearm promotions and a pullback on promotion within the camping segment, specifically generators. Firearm unit sales shot 8.8 percent higher, but ammunition sales dipped 3.4 percent. Footwear revenues grew 2.9 percent on solid gains from hiking and work boots and fishing was up 1.4 percent. Elsewhere, the chain experienced a 75 percent, year-over-year increase in Buy Online, Pick Up in Store orders in Q3, and experienced 23 percent year-over-year growth in loyalty members to 1.8 million. The group currently represents 46 percent of all revenues. The retailer, which intends to open 4-5 new stores in 2019 that includes one in Lansing, MI, is currently forecasting FY18 revenues of $844-852 million and annual comps in the flat to +2% range.

• Tilly's, which experienced a 3.9 percent drop in Q3 revenues, generated a 1.3 percent comp sales increase in brick-and-mortar and 4.3 percent comp gain overall (including ecommerce). Ecommerce sales rose 26.7 percent to an estimated $20.55 million. Footwear was the 227-door chain’s strongest category during the period. TLYS says the California wildfires did not have a material affect on results, although a few locations were closed for some days. Meanwhile, the specialty retailer continues to forge ahead with its RSQ private label denim brand, opening four pop-up locations for the brand this FY to date. Tilly’s, which hopes to open 15-20 new full-size stores in FY19, is working on an enhanced mobile app and an expanded loyalty program offering same-day delivery from select stores and a ship-to-store program.

• Sears reportedly intends to sell 505 store leases in early 2019 as it aims to further reduce debt and retain a brick-and-mortar presence. Additionally, the bankrupt retailer is seeking rent reductions from landlords for its remaining locations.

Trade Show
The Running Event in Austin

The running industry gathered in Austin, TX last week for the 13th annual Running Event conference and trade show. More than 290 brands showcased their running products on the show floor. View some of our top product picks from The Running Event trade show floor on Instagram here [instagram.com/sportsinsightextra] and look for in-depth coverage of the running market in upcoming issues of Sports Insight magazine.

Basketball Buzz
New Balance Snatches Brand Jordan Player; Adi Banks on Brooklyn

Adidas visited Brooklyn for the inspiration behind a new basketball collection.

New Balance has finally punched its re-entry ticket into the NBA, signing Toronto Raptor and former Brand Jordan endorser Kawhi Leonard to a multi-year shoe contract reportedly valued at more than $5 million annually. It is unclear at this point when and if Leonard, an NBA All-Star, will have a signature shoe with New Balance. Leonard is the brand’s most high profile NBAer since the 1980s and former Laker James Worthy. According to SBNation, Leonard, a two-time Defensive Player of the Year, failed to complete a new four-year contract with Nike earlier this year.

With the contract, the Boston company ends its months-long quest to establish a new foothold on the NBA hardwood. Earlier this year, NB lost out on its attempts to ink Boston’s Gordon Hayward (Anta), Philadelphia’s Joel Embiid (Under Armour) and Washington small forward Kelly Oubre Jr. (Converse) to endorsement agreements.

Elsewhere,

Adidas is adopting a Brooklyn “state of mind” with its new basketball footwear and apparel collection that was co-created with the adidas Brooklyn Farm. Each shoe in the assortment, which launched exclusively on the brand’s website Dec.1 ahead of an official launch date later this year, is embroidered with the “11222” zip code.

Nike is utilizing augmented reality inside its SNKRS app to reveal its new Air Jordan 11 Concord set to go on sale Dec. 8th.

Firearms/Hunt Momentum Takes a Hit

New laws, less retail space and fewer donations to its top advocacy organization, the National Rifle Association, are negatively impacting the gun and ammo industry today.

The U.S. firearms business, riding sales highs during the Obama Administration, is facing a number of new challenges despite a staunch ally in the White House today. According to public filings obtained by The Daily Beast, contributions to the National Rifle Association (NRA) were down 22 percent in 2017 as the organization’s full-year revenues dipped 15 percent to $312 million.

Dick’s Sporting Goods, which made a controversial move earlier this with its decision to no longer sell assault weapons and tighten its store policy on selling guns, has removed all hunt products from 10 locations in favor of higher-margin assortments of baseball, licensed products and outerwear. Depending on reaction to the change, more of Dick’s 700+ stores could see shrinking firearms/ammo/hunt assortments in FY19 and beyond.

Meanwhile, the passage of Prop 63, which goes into effect in July 2019, has accelerated year-end sales of ammo in the Golden State. One San Diego area sporting goods store, for example, sold 600,000 rounds, half of its inventory, in the days immediately before Black Friday. The new California law, which is frustrating gun owners across the state, requires they pass a second background check to purchase ammunition after passing a first background check for a gun permit.

Execs on the Move
Saucony Has a New CMO; New Presidents at Altra, Rockport Group

Left to right; Don Lane and Javan Bunch.

Wolverine Worldwide-owned Saucony has hired Don Lane, most recently SVP of brand and creative for DraftKings, as its new chief marketing officer. Lane, who previously spent more than two decades at global creative agency Arnold Worldwide, will report directly to Anne Cavassa, Saucony president.

Meanwhile, VF Corp. recently appointed Todd Dalhausser as brand president of its Altra business, effective immediately. He joins Altra from Saucony North America where he was SVP of sales. With his hire, Altra Co-Founder Brian Beckstead becomes founder and Chief Marketing Officer for the running brand with responsibility for all product and marketing. At The Rockport Group, seasoned fashion and lifestyle company veteran Javan Bunch, most recently CEO of Donald J. Pliner and previously with Tory Burch and Coach, has been installed as president of the Newton, MA company reporting to CEO Gregg Ribatt.

Elsewhere,

• Columbia Sportswear has named John Soh, a 20-year Nike veteran who most recently has been senior commercial director for LEGO in Asia-Pacific, as VP/GM of its China business, effective in mid-February.

• Sportsman’s Warehouse hires Steve Stoner as SVP of human resources and Eric Slugstab as director of inventory planning.

• Pixellot, a Tel Aviv, Israel company specializing in automatic sports production technology, names David Shapiro, president of its U.S. youth division and head of U.S. sales. He is the former CEO of Steel Sport. His hire follows a $30-million investment round in Pixellot, led by Los Angeles-based Shamrock Capital Advisors.

What's Hot, What's New?

Adidas new N3XT L3V3L, is the brand’s first laceless basketball shoe, part of the adidas Brooklyn Farm collection for Spring/Summer 2019. It is also the first Adi style with LIGHTSTRIKE, a super-light midsole. MSRP $180.

Stanley is introducing Master Series Trigger-Action Mugs (16- and 20-oz; $50/$55 MSRP) for Fall 2019 featuring the brand’s QuadVac insulation technology that helps keep coffee hot for 7-9 hours.

Tifosi’s new AMOK series of running sunglasses are rooted in the brand’s lightweight Grilamid TR-90 frame that is flexible and virtually indestructible. Hydrophilic rubber on all contact points ensures a secure fit. Style comes with three lenses. MSRP $60-70.

Quotable

“Personally, and from a business standpoint, you’re much richer if you interact with people of different cultures, different languages and different beliefs. It’s made America what it is today and the fact that it’s under siege is depressing.”
Tim Boyle, president of Columbia Sports wear to the Financial Times

The Buzz

Canada Goose recently filed for a secondary offering of 10 million shares that are being offered for sale by certain executive officers and directors of the Toronto company. None of the sale proceeds will be retained by the company.

Patagonia is investing the $10 million in cash it received from last year’s federal tax cut into grassroot organizations focused on climate change and public lands.

SFIA, which saw bipartisan passage of the PHIT Act in the House in July, is hoping the Senate will include the bill in tax package that will be voted on this month. Last week, the trade group was urging members to Tweet or email their respective senators about the need to include PHIT in the tax package.

YETI, in its first reported quarter since filing an IPO, generated a 7 percent revenue jump to $196.1 million and 51 percent increase in profitability to $17.0 million for the period ended Sep. 29. Direct-to-Consumer sales rose 23 percent to $71.2 million. Wholesale revenues were flat at $125.0 million with lower cooler and equipment sales offsetting higher drinkware.

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
Segment rebounds after two consecutive weekly declines. But nearly 2.2 percent increase for the eight-day period trails Dow’s 3.57 percent gain. Eleven stocks rise and four decline. JD Sports, parent of Finish Line, now has 15 stores in Australia after opening a two-level flagship in Sydney. Dick’s reported “an about even” footwear business in Q3 and a drop in outdoor equipment sales. Retailer’s apparel business is said to be “gathering momentum.” With 80-100 store leases up annually, DKS says it has an aggressive process in place “to manage (lease) costs down.” Sportsman’s Warehouse expects some price hikes after Jan. 1 due to higher tariffs on imports from China, particularly on camping furniture. Hibbett Sports says its omnichannel customers spend twice annually what its store-only customers do. In Q3, team sports business declined mid-single digits as positive sales in baseball, softball and volleyball were unable to offset declines in fitness, basketball and football. Tilly’s reports redemptions on a one-time, 50 percent discount coupon, issued to 612,000 of its customers as part of a legal settlement, have been less than 1 percent thus far. Unused coupons expire in Sept. 2019.
Brands
Segment rises more than 2.4 percent with 10 stocks up and five down for the period. Under Armour, which is conducting its first investor day in three years on Dec. 12, is losing 13-year veteran and current GM/senior director of sales Sean Mannion. He is taking over as VP of sales for Asics America in Boston. Callaway makes its third acquisition in 23-months (see story above), agreeing to acquire German outdoor brand Jack Wolfskin for $476 million. Skechers donated more than 10,000 items to those affected by the California wildfires and began a fundraiser at its 100 Golden State stores for the California Community Foundation’s Wildlife Relief Fund. Puma launched a new sport-inspired collection with En Noir—the King Avanti En Noir—at its Miami store on Nov. 28 before dropping the collection globally the next day. Lululemon reports its next quarterly results on Wednesday. This morning, a Bloomberg report suggested LULU founder Chip Wilson is in negotiations with a consortium led by Anta Sports to take a 20 percent stake in Amer Sports when the acquisition group’s bid for the Finnish parent of Wilson and Salomon, among others, is complete. Columbia Sportswear President Tim Boyle, 69, tears into Pres. Trump’s trade and immigration policies on television and print.

RETAIL: 54

45.72%

BRANDS: 177

77.26%

Weekly Review

Retail Name (Ticker Symbol)
Close on 11/21/18
Close on 11/30/18
% change over week
Big 5 Sporting Goods (BGFV)
BGFV
$3.95
$3.60
-8.86
Sports Direct (LON: SPD)
SPD
$359.34
$372.03
+3.53%
Camping World (CWH)
CWH
$17.45
$19.01
+8.94%
Dick's Sporting Goods (DKS)
DKS
$35.09
$35.52
+1.23%
JD Fashion (JD)
JD
$495.13
$504.98
+1.99%
Foot Locker (FL)
FL
$52.97
$55.37
+4.53%
Genesco (GCO)
GCO
$40.31
$41.79
+3.67%
Hibbett Sports (HIBB)
HIBB
$17.21
$15.51
-9.88%
Kohl’s (KSS)
KSS
$66.29
$67.10
+1.22%
Macy’s (M)
M
$32.58
$33.74
+3.56%
Sportsman’s Warehouse (SPWH)
SPWH
$4.57
$4.70
+2.84%
Shoe Carnival (SCVL)
SCVL
$36.78
$37.05
+0.73%
Tilly’s (TLYS)
TLYS
$15.32
$12.05
-21.34%
Walmart (WMT)
WMT
$94.17
$97.29
+3.31%
Zumiez (ZUMZ)
ZUMZ
$19.67
$19.21
-2.34%
TOTAL
TOTAL
$1,290.83
$1,318.95
+2.18%
Brand Name (Ticker Symbol)
Close on 11/21/18
Close on 11/30/18
% change over week
Acushnet Holdings (GOLF)
GOLF
$23.75
$23.20
-2.32%
adidas (ADDYY)
ADDYY
$116.34
$112.72
-3.11%
Amer Sports (AGPDY)
AGPDY
$38.58
$38.46
-0.31%
Callaway (ELY)
ELY
$19.55
$18.90
-3.32%
Columbia Sportwear (COLM)
COLM
$89.82
$90.11
+0.22%
Deckers Brands (DECK)
DECK
$123.39
$130.27
+5.58%
GoPro (GPRO)
GPRO
$5.32
$5.33
+0.19%
lululemon (LULU)
LULU
$123.88
$129.46
+4.50%
Nautilus (NLS)
NLS
$13.23
$13.29
+0.45%
Nike (NKE)
NKE
$72.33
$74.35
+2.79%
Puma (PUMA)
PUMA
$491.00
$509.85
+3.84%
Skechers (SKX)
SKX
$26.67
$26.56
-0.41%
Under Armour (UA)
UA
$20.04
$21.75
+8.53%
VF Corp. (VFC)
VFC
$79.51
$79.46
-0.06%
Wolverine Worldwide (WWW)
WWW
$33.85
$34.40
+1.62%
TOTAL
TOTAL
$1,277.35
$1,308.11
+2.41%

Sports Insight Extra Podcast Series