The market selloff took sports stocks down with it, as investors worry consumer spending could fizzle. But could these 3 global leaders, each unique, with a huge die-hard fan base, stage a comeback?
High-quality sports brands have captured fans all around the world and have the benefit of bringing together communities that reinforce their brand and pricing power. Today, sports brands benefit from an increasing number of people that have adopted sportswear as part of their fashion accessories, and from a soaring number of sports enthusiasts.
Lululemon: Community, Innovation, Lifestyle
Lululemon (ticker: LULU) is a yoga and athleisure company, founded in Vancouver in 1998. Today it offers athletic apparel for yoga, running, dancing, training, and streetwear. It focuses on high-quality fabric, innovation, and creates strong relationships with its customers. In doing so it fosters a luxury-like positioning and generates much lower acquisition costs than the competition. Its community power is driven by local ambassadors and through its social media strategy of authentic people posting about the products and Lululemon lifestyle.
On top of its 574 retail stores across 17 countries, Lululemon provides an online shopping experience, like the real thing, equipped with virtual shopping assistants and online sales are free shipping and free returns.
Lululemon shares dropped close to 30% at one point this year, similar to the Nasdaq, which comprises other growth stocks. While the general economic backdrop has deteriorated with lockdowns in China (70 stores) and the war in Ukraine that has created a surge in transportation costs, hurting consumers, Lululemon management says the sales momentum remains strong.
On top of launching new products such as its first-ever footwear collection in March, Lululemon is also accelerating its shift to online channels, for which revenue already accounted for 44% of sales in 2021. The yoga brand giant is also still at the beginning stage of its international strategy as revenue outside North America represented only 15% of the company’s total in 2021.
Nike: Icon, Culture, Leader in athleisure
Since its founding more than 50 years ago, Nike (ticker: NKE) runs marketing campaigns with athletes and celebrities, helping change attitudes toward exercise. Today, Nike nurtures its cool reputation to move into new categories and seeks growth in emerging markets, with China contributing 22% of its total sales.
In late June, Nike reported better-than-expected earnings despite the softness in China and unveiled a new four-year USD18 billion share repurchase program (current market cap: ~160 billion). However, investors must look past the near-term outlook, which the company believes will be difficult as growth remains stagnant, affected by the weak China sales because of the local virus curbs.
It is possible that a great deal of pessimism is already baked in as the stock has slid 37% year-to-date. Patient investors may look at the glass half-full and may find reassurance in that company director John Rogers recently bought the battered shares.
Adidas: Innovator, Marketing mastermind, Leader in athleisure
Adidas (ticker: ADS), the second-largest global sportswear manufacturer, is a German multinational founded in 1949.
Adidas has proven it is very agile through its e-commerce strategy and collaborations with artists such as Kanye West and Beyonce.
One of its famous campaigns “Impossible is Nothing” featured football legend Lionel Messi. In terms of product positioning, its unique selling point is to develop strong and distinct products such as its lightweight and comfortable sports apparel.
In China, it achieved immense success by reaching low-tier cities with high-tier products, but this year its China exposure (22% of sales) has hurt the company’s growth due to the local challenging market environment and Covid lockdowns.
After falling 40% year-to-date the stock is now below its March-2020 lows.
Conclusion
Global sports leaders should be able to weather the soft patch in the economy, supported by their brand and pricing power, and significant market shares. The economic headwinds have certainly hurt their stocks as valuation multiples and earnings growth suffer, but it is also offering near-term opportunities for those companies, such as Nike’s buyback program. Lastly, the Western sports leaders should gain momentum in China in the long-term, once the Covid curbs will be behind us.
