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Athletic Footwear: A Few Stumbles, But Still on Its Feet

Thomas Paulson
Aug 5, 2022
Athletic Footwear: A Few Stumbles, But Still on Its Feet

  • Adidas lowered its revenue outlook for the full year to reflect an anticipated slowdown in 2H22 across its major markets, especially China. That said, the company's 2Q22 update read, "So far, the company did not experience a meaningful slowdown in the sell-through of its products or significant cancellations of wholesale orders in any other market. Nevertheless, the adjusted guidance also accounts for a potential slowdown of consumer spending in these markets during the second half of the year as a result of the more challenging macroeconomic conditions."
  • As a reminder, Adidas 2H22 faces easy comparisons as it was not able to meet demand last year due to factory shutdowns in Vietnam. As such, the "lowered" outlook is a disappointment. We suspect that. while there were no significant cancellations, there may be a pause is re-orders by many retail customers and cancellations by smaller accounts.
  • Puma, an outperforming brand, indicated that they also expect slower 2H22 growth relative to 1H22. Still, +16% expected growth for its Americas region (versus 29% in 1H22) is a solid rate.
  • Deckers reported very solid 2Q22 results for its HOKA business with revenue up 55% to $330M. This indicates that HOKA now represents 50% of Decker's revenue (UGG, Teva, and Sanuk were flat to down). UGG’s "fluff" business is lapping large increases during the pandemic and sifting its business mix to sandals and other lower AUR categories. Both of these dynamics were behind the 5% Y/Y revenue decline for the business.
  • Management expects the HOKA business to grow by $350M+ over the next year. By comparison, Nike’s U.S. Footwear business (non-Jordan) will grow by about $700M. You read that correct--HOKA is expected to add roughly half of the revenue that Nike will grow next year. That significant level of growth comes from its DTC business, increased distribution at independents, adding more Dick’s Sporting Goods doors, as well as to expanding into Foot Locker. The company also shared that the sales and inventory productivity for its HOKA retail partners compared to other brands for has been "exceptional." As we have previously mentioned, Adidas, HOKA, and On Running are filling the space in Foot Locker that was voided by Nike.
  • Under Armour posted another sluggish quarter in 2Q22, including no revenue growth in the U.S. (As a reminder, its CEO departed in June and a replacement has yet to be named.) Wholesale was modestly up for the brand, whereas retail sales declined 8% driven by softness at its outlet stores. Placer.ai data suggests that Under Armour is up to a pretty heavy challenge to turn the outlet business, as traffic is down over 20% to 2019. However, with outlet malls posting a big jump in visits during July, this situation also presents an opportunity.

  • Similar to other slower moving brands, Under Armour's profitability is under pressure due to heightened supply chain costs and higher than planned promotions. Under Armour founder Kevin Plank returned to company's update and shared, "Our next chapter will be met with simplicity of understanding that our role is to inspire our athletes, teammates, customers and all stakeholders to love UA. We believe this will drive more robust top line growth and increased profitability over the long term. Take care of the brand, optimize the assets, we already have as there are so many, from partnerships to athlete relationships to being opportunistic where it makes sense."
  • VF Corp’s 2Q22 quarterly results showed ongoing momentum at The North Face, whereas Vans continues to be challenged, and Dickies slipped into a sharp sales decline (-15%) reflecting a difficult comparison and inflation impacting its core, less-affluent customer (which led to a reduction in orders by its retail customers, including Walmart). Management expressed confidence in Van's health and recovery prospects but admitted that the results are still not up to their expectations. Vans stores are doing 85%-90% of what they were pre-pandemic, as shown below.

  • Sales of The North Face climbed +39% in the Americas region, with the growth more from strong wholesale orders (REI, Nordstrom, etc.) than its own DTC channel (where sales were up only +16% driven by improved traffic in stores). The brand has new leadership with Nicole Otto becoming President.
  • Management shared that the consumer momentum in the top-tier outdoor category remains vibrant from their perspective. Placer.ai data for REI shows a slowdown in YoY visits starting in the second half of May and a decline in July.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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