Holiday Season Brings Cheer To Under Armour
Retail sales rose in December as severe temperature conditions drove Americans to buy heavily discounted winter clothes and shop online, capping off a strong third quarter for consumer spending. According to the MasterCard Advisor’s SpendingPulse report, retail sales grew 2.3% year-over-year between November 1 and December 24, which was the highest sales growth in three years. [1]
According to ShopperTrak, U.S. retail foot traffic was down almost 15% between November 27 and December 25 from 2012, even though in-store sales actually increased modestly. [2] The strong figures for holiday-season sales were driven by online purchases, as fewer customers visited the malls. Holiday-sales for sports apparel companies sales lost momentum compared with last year and grew in the teens.
In this article, we take a look at how Under Armour and Nike fared over the holiday season and see what that means for them in the long term.
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Under Armour Sales Grow By A Third
An overall disappointing season for sports apparel sales did not affect Under Armour (NYSE:UA) as it recorded a strong holiday sales season with sales growing by 34%- — more than major competitors including Nike and Adidas. It was one of few sports based apparel companies to grow its sales. [3] Under Armour’s heavily promoted fleece line was a major sales driver. The company had ramped up its promotions for the holiday season, much more than compared to the previous year. An example of this was the advertising campaign around Under Armour’s new ColdGear Infrared technology, which included a TV spot featuring downhill skier Lindsey Vonn, speed skater Shani Davis and Duck Dynasty star Willie Robertson, with a voiceover by CEO Kevin Plank himself. [4]
Under Armour’s shares were trading at ~$82 early Sunday morning, a ~80% rise from the previous year. The strong holiday season sales might spur a further rally in the growth of this stock as it could reflect in a strong earnings growth for Q3 FY’14. Early last week the markets fell because investors pulled out of their investments with the general overriding sentiment being that stocks would not go any higher in anticipation of a weak earnings season and decided to exit with profits. [5] However, Under Armour’s continued strong performance shows why it has been one of the best apparel stocks to invest in over the last few years.
We currently have a $74.20 price estimate for Under Armour represents a ~15% downside to the market price.
See our full analysis for Under Armour
Nike Disappoints
Nike (NYSE:NKE) suffered because of an overall drop in momentum of the sports apparel market. Its apparel sales grew 12 percent over the holiday period, between November 28 and December 24. Sales lagged because of a shorter holiday season as Thanksgiving fell a week later in 2013. Nike comes with a special collection of products and deals only for the holiday period. [6] This includes holiday gift guides especially designed for the festive season. Nike also rolled out special shoe offers as part of its Black Friday and Cyber Monday deals. [7] Despite such promotional campaigns, Nike could not ride the wave of high consumer spending over the period.
Putting these results in the context of Nike’s overall fiscal outlook for this year, as products are sold at heavy discounts over the holiday season, might put further pressure on its margins. Gross margins for the first half of the fiscal year exceeded our expectations as a sales mix of higher margin products and higher average selling prices as well as continued strength in its DTC business, increased margins.While these factors will continue to drive margin expansion in the second half of the fiscal year, new pressures such as rising raw material costs and increased discounts to clear pockets of excess inventory can mitigate their impact. Rising labor costs and currency headwinds are also expected to put a dent into Nike’s bottomline figure. [8]
We currently have a $67.49 price estimate for Nike, a ~8% downside to the market price.
See our complete analysis for Nike
Understand How a Company’s Products Impact its Stock Price at Trefis
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