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Mon, Aug 28, 2017
Vol 1, Issue No. 33
Monday, November 20, 2017
Volume 1, Issue No. 45

Leaner Foot Locker Intensifies ‘Read & React’ Strategy

The retail athletic specialty giant isn’t standing still, and Wall Street likes what it hears. Foot Locker shares surged 28 percent on Friday, their biggest one-day gain in 40 years, after the retailer posted stronger than forecasted third quarter earnings, announced a stronger alliance with Nike, and vowed to work more closely with top vendors on unique product platforms and stories to spark interest among its global consumer base.

“I want to close by saying… that we are not in this game to get a ribbon for participation. We are in this game to win it,” CEO Dick Johnson told analysts.

Most certainly, Foot Locker is intent on being a nimbler, faster operation in FY18 with a restructured business model that starts the year with a cleaner inventory base and the ability to respond more quickly to faster product lifecycles. The retailer has created a North American product marketing strategy team, led by Andy Gray, to develop unique product platforms and stories that can be scaled globally. Also, Foot Locker has re-organized its North American segment under the general managers of each banner and spearheaded by Jake Jacobs. In the third quarter, FL took a $13 million charge related to the re-organization that included unspecified layoffs.

Key investments going forward will focus on digital, data analytics and supply chain. Foot Locker is reconfiguring its principal warehouse in Kansas to fulfill Direct-to-Consumer shipments and ease constraints on its Eastbay/DTC facility in Wisconsin. The action should be completed by mid-2018. Additionally, mini distribution hubs are being tested in key metro markets to replenish stores more quickly, reduce the need for expensive backroom space in stores, and eventually allow for next-day or same-day delivery of DTC orders. A logistics facility in Pennsylvania and another in New Jersey are being upgraded to better handle demand for much of the U.S. East Coast.

Shortly, Foot Locker will have all of its ecommerce sites globally on the same platform along with all mobile apps as all banners worldwide commence operating on the same point-of-sale software. Clearly, the retailer wants to be prepared as digital, still less than 10 percent of an individual door’s sales, elevates among its core consumer set of 12- to 25-year old males.

As for the Nike alliance, a pop-up concept with the Swoosh called Sneakeasy, described as a peek into the future of sneakers and how FL will work with the brand going forward, opens at 30 Wall Street this week. Additional pop-ups may appear in other key markets going forward. Also, dedicated Nike Pros will begin working in New York area stores to support product story and service levels.

In the third quarter ended October 28, Foot Locker realized a 3.7 percent decline in comparable store sales, which were negatively impacted by 450 store closures due to Hurricanes Harvey, Irma and Marie. Apparel sales increased mid-single digits on a comp basis, helped by branded fleece and windwear from Nike, Adidas and Champion. Footwear was down mid-single-digits, impacted most by a double-digit drop in women’s. Running was the strongest men’s category, up high single digit, and men’s basketball was off but improved from the second quarter on stronger sellthroughs of select Jordan Retros and other casual styles. DTC comps rose 6.1 percent to account for 13.8 percent of period revenues, or about $258 million. Currently, FL is forecasting a 2-4 percent decline in fourth quarter comparable store sales, better than a prior forecast of a 3-4 percent drop, as gross margins dip an anticipated 220-240 basis points on the need for high markdowns to move slow-moving inventory.

Dick’s Has Dim Short-Term View; Long-Term Hope

The nation’s largest full-line sporting goods retailer is making investments in its business for the long-term but offering a dim outlook on the near-term, citing retail’s persistent promotional environment and the cost of its planned improvements. Dick’s, which is making additional outlays for its Team Sports HQ, digital segment and the further development of its private label brands, is forecasting continued gross margin pressure and flat comparable store sales in FY18 that could send per share profitability down by as much as 20 percent. Continued pressure on margins is expected in H1/FY18.

“…I think that the retail environment in this industry is going to continue to be promotional because there’s just too much inventory sitting in the pipeline,” CEO Ed Stack told analysts last week. Dick’s intends to strengthen its alliance in FY18 with brands focused on innovation and excitement at the expense of brands focused largely on price and expanded distribution. The retailer will have more exclusive products from key brands and offer some premium-priced items that are not as price sensitive as comparable products.   “These (planned investments)… we’re supposed to do for the long-term benefit of the company,” Stack later stressed. “…And the time to make these investments and try to change this business is when you do this from a position of strength versus a position of weakness.”

On the digital front, DKS has hired former Home Depot senior executive Paul Gaffney as EVP/Chief Technology Officer to oversee the retailer’s infrastructure, ecommerce business and evolving digital platforms. In separate developments, the retailer has made a change to its Scorecard loyalty program. Starting in 2018, point will stop expiring at year-end and move to a rolling 12-month expiration. Also, new store growth is being scaled back to 15-20 next year from 59 in FY17.

In the recently completed third quarter, consolidated same store sales for Dick’s dipped 0.9 percent on a 0.9 percent drop in transaction and flat average ticket. Ecommerce sales were 16 percent higher as golf and private brand each comped positive double-digits. Athletic footwear comps were up low-single digits, but hunting (down double-digits) and fitness tracking were very soft with trends projected to continue in the fourth quarter.

Retail Round-Up
Shoe Carnival Sets CRM Strategy; Hibbett Eyes Ecommerce Upside

The family shoe chain will commence a new Customer Relationship Management system in early 2018 along with an enhanced loyalty program. Both are expected to deliver upside to Shoe Carnival over the next three years. Already, since launching a new website in September, SCVL has begun creating brand landing pages and will add vendor drop-ship capability in 2018.

During the third quarter, Shoe Carnival generated a 4.4 percent comparable store sales increase as per door inventory fell 4.3 percent. Adult athletic sales rose mid-single digit, and senior management told analysts that the chain has re-allocated inventory dollars to both athletic and athleisure styles for Fall 2018.

At Hibbett Sports, ecommerce sales were approximately 5 percent of third quarter revenues, or approximately $11.9 million, as the small-market athletic specialty operator increased the number of new participants in its Rewards loyalty program by 25 percent during the quarter. The program currently has an estimated 8 million members. Meanwhile, HIBB wants to get its ecommerce sales as a percentage of total revenues into double digits.

“Eventually, ecommerce has the potential of being better than our stores,” Hibbett CFO Scott Bowman told analysts. “And the reason for that is because the platform we chose has a fairly high fixed-cost component…”

In the third quarter, Hibbett realized a mid-single digit comp sales gain in men’s apparel but saw a double-digit drop in licensed sales and a single-digit decline in team sports. Baseball/softball rose low-single digits, but was offset by declines in football and soccer. Footwear comps increased mid-single digits with men’s increasing high-single digits. The chain, which realized better product accessibility from Nike, Adidas and Brand Jordan, increased investments in Puma, New Balance, Brooks and Vans and saw “significant growth” from the group of brands.

Badger Sportswear on Acquisition Prowl Again

Ten days after disclosing it would acquire Alleson Athletic, a maker of in-stock uniforms and custom sublimated garments, by month’s end, Badger Sportswear last week said it had purchased Garb Athletics, a boutique maker of custom-tailored sports uniforms. Eleven-year old Garb, founded by Steven Rosenbeck in 2006, was recently named to Inc. magazine’s fasting-growing companies list for 2017.

According to Statesville, NC-based Badger, Garb occupies a unique space in the team uniform market via its proprietary digital technology that allows team dealers and coaches to quickly and easily design a custom uniform with unlimited decoration options for delivery in less than four weeks. Joseph Snow, an experienced software developer who was on the original development team for EA Sports’ Madden Football, created Garb’s proprietary, user-friendly online platform. The customized garments are made at a Garb facility in the Philippines. Thanks to Garb’s pre-populated school logo database, which contains nearly every U.S. school, nearly every U.S. high school and middle school will have the ability to design custom, affordable hand-crafted uniforms.

LAX World Brick-and-Mortar Future in Doubt

The lacrosse specialty chain, set to celebrate its 30th anniversary in 2018, closed most of its 16 locations this fall. The retailer continues to sell products through its website.

Court records and published reports indicate LAX World is saddled with debts, owing both landlords and vendors thousands of dollars, and lawsuits demanding payments and citing breach of contract. As of last week, the Cockeysville, MD company, which 10 months ago talked of expanding to 50-60 doors nationally after acquiring Denver-based Breakaway Sports, had not filed for bankruptcy protection or announced a sale. But industry sources suggest both scenarios are possible in the coming weeks.

In September, LAX World closed down its Towson, MD flagship store and its website suggests the only locations that remain open are in Duluth and Roswell, GA. Meanwhile, Cascade Maverik Lacrosse, LLC filed a bread of contract suit against the retailer in mid-October seeking more than $500,000 for payment on merchandise orders plus accrued interest.

The Buzz

ASICS America has completed the installation of a wholly owned one megawatt rooftop solar panel array at its Byhalia, MS distribution center, the largest private system in that state. The renewable energy project ensures that 25 percent of the company’s annual energy needs will be self-generated over the next 25-30 years.

Blundstone, earlier this month, partnered with New York shoe retailer DNA Footwear on a Brooklyn in-store event featuring boots, beers and Aussie pies. The Tasmania, Australia founded brand was featured on the DNA billboard in Brooklyn and intends to develop future retail partnerships with the retailer. The company is known for its iconic elastic-sided Chelsea boots that are sold worldwide.

Tubes of the Week


Numbers In Play
Week of 11/09-11/16
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
Twelve of 15 stocks have up week. Foot Locker, up more than 4 percent for the week, had a blockbuster November 17, the day after the period, as shares rose 28 percent on stronger than forecast earnings and announcing a partnership with Nike to open a NYC pop-up concept called Sneakeasy on November 22. Hibbett shares rose more than 26 percent on November 17. Although the small-town operator reported better-than-expected third quarter results and raised guidance, same store sales were flat for the period. Shoe Carnival suffered a low-single digit drop in third quarter traffic due to the hurricanes in Florida, Texas and Puerto Rico, but better-than-forecast results and a 4.4 percent increase in comparable store sales.
Segment Index soared to ‘103’ on nearly a 3.3 percent aggregate gain for the period as 11 stocks rose in price. Columbia Sportswear is considering shutting down its downtown Portland, OR office due to ‘unsafe and unsavory’ conditions. Acushnet Holdings, parent of Titleist and FootJoy, sees South Korean investment fund Mirae Asset Global sell its more than 9.1 million shares in the company for gross proceeds of $155.8 million. A consortium led by Fila Korea and Mirae acquired Acushnet in May 2011, before its IPO, for $1.23 billion. After the secondary offering was completed, Acushnet shares closed up 2.7 percent to close at $18.91. Deckers is projecting a 380-basis point increase in operating profit margin over three years ending in FY20 due to strategic initiatives. Company says shareholder Marcato’s board proposals are not in best interest of all DECK shareholders, including a proposed divestiture of all brands with the exception of UGGs. Skechers adds John Vandemore, who has worked for Walt Disney and Mattel, as CFO. COO David Weinberg is relinquishing that title and responsibilities to focus on company operations.





Retail Name (Ticker Symbol)
Close on 11/09/17
Close on 11/16/17
% change over time
Big 5 Sporting Goods (BGFV)
Sports Direct (LON: SPD)
Camping World (CWH)
Dick's Sporting Goods (DKS)
Finish Line (FINL)
Foot Locker (FL)
Genesco (GCO)
Hibbett Sports (HIBB)
Kohl’s (KSS)
Macy’s (M)
Sportsman’s Warehouse (SPWH)
Shoe Carnival (SCVL)
Tilly’s (TLYS)
Walmart (WMT)
Zumiez (ZUMZ)
Brand Name (Ticker Symbol)
Close on 11/09/17
Close on 11/16/17
% change over time
Acushnet Holdings (GOLF)
adidas (ADDYY)
Amer Sports (AGPDY)
Callaway (ELY)
Columbia Sportwear (COLM)
Deckers Brands (DECK)
Fitbit (FIT)
GoPro (GPRO)
lululemon (LULU)
Nautilus (NLS)
Nike (NKE)
Skechers (SKX)
Under Armour (UA)
VF Corp. (VFC)
Wolverine Worldwide (WWW)

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