Andrew Redington/Getty Images for Premier League
The past few months have been tricky for sporting-goods investors. Western brands, especially
Nike,
have felt the heat of boycotts in China, while higher shipping costs have been a worry for margins. Yet these headwinds will likely prove temporary, argues HSBC.
Analyst Erwan Rambourg reiterated a Buy rating on Nike (ticker: NKE) stock on Wednesday, while raising his price target to $205 from $161. The move comes just weeks after the company reported upbeat earnings, despite ongoing tensions in China. Rambourg also reiterated a Buy rating on
(PUMA.Germany), and upgraded
(ADDYY) to Buy from Hold.
He doesn’t expect fears about China—a key market for all three companies to end overnight. Yet at the same time, while there is no “easy exit to this crisis, we also feel that Nike, Adidas, and Puma still have years of very profitable growth ahead in this key market.”
Time should see tempers cool, Rambourg writes, and the high cost of freight similarly won’t last forever. Meanwhile, inventories have been low throughout the industry, which means less need for margin-crunching discounting. This comes at a time when these brands are doing more direct-to-consumer sales online, allowing them to cultivate relationships with consumers to encourage loyalty, as well as gather valuable data.
Nike will of course remain the major driver in sporting goods, both in China and other markets around the world. But while he is “not implying Adidas and Puma are remotely comparable to the industry leader, there are many lessons from Nike’s roadmap that can be useful for their smaller European counterparts,” Rambourg notes.
He also thinks that sporting goods are one of the more compelling categories in retail at the moment, more so than luxury, given their more accessible price points, and the likelihood of repeat purchases.
Write to Teresa Rivas at teresa.rivas@barrons.com
