The sportswear market is growing steadily, fueled by increasing health consciousness, the popularity of sports events, and a rising demand for stylish and comfortable activewear. Nonetheless, it encounters challenges from the counterfeit market, posing a threat to sales and economic stability.
However, waiting for better entry points in sportswear stocks adidas AG (ADDYY) and NIKE, Inc. (NKE) seems prudent now.
Sporting goods leaders expect stable or improved sales and margins in 2024. Still, they face continued challenges from inflation and inventory levels, with more than 80% reporting higher inventory peaks than the previous year. This has led to increased promotions, prompting 70% of executives to prioritize improving planning capabilities for the year.
In December 2023, U.S. sporting goods stores recorded sales of approximately $7.10 billion, marking a significant increase of nearly $1.80 billion compared to the prior month. Further, the global sportswear market is expected to grow at a CAGR of 10.4% to reach $479.63 billion by 2025. The growth of online retail has made sportswear more accessible, driving the market’s prospects.
Moreover, Gen Z's spending on sports apparel remains robust, with global sales expected to exceed €395 billion ($401 billion) by 2025. Social media influence and online sports communities play a significant role in driving Gen Z's engagement with sports apparel, indicating a promising market for brands targeting this demographic.
Besides, the fitness app market is expanding rapidly due to heightened health awareness and technological advancements enabling personalized fitness plans. Increased investment from firms and capital ventures further drives market growth through innovative solutions and geographical expansion.
The global fitness apps market is estimated to grow at a CAGR of 18.1% to reach $34.3 billion by 2027.
Considering these conducive trends, let’s discuss the fundamentals of two Athletics & Recreation stock picks, ADDYY and NKE.
Stocks to Hold:
Stock #2: adidas AG (ADDYY)
Based in Herzogenaurach, Germany, ADDYY is a leading global provider of athletic and sports lifestyle products distributed through various channels worldwide. The company’s portfolio includes footwear, apparel, and accessories under well-known brands such as adidas, adidas Golf, and Five Ten, catering to diverse consumer preferences across regions.
On March 13, 2024, ADDYY posted its first annual loss in over 30 years, attributing it to struggles in North America and the fallout from severing ties with Kanye West, resulting in a €58 million ($62.59 million) net loss despite revenue of €750 million ($809.36 million) from Yeezy sales in 2023.
The company anticipates a 5% sales decline in North America this year, following a 21% drop in the fourth quarter and a 16% decline throughout the year.
On March 11, the German Football Association (DFB) announced that after a historic partnership spanning seven decades, ADDYY will be replaced by NKE as Germany's official supplier from 2027. NKE's winning bid secures a contract from 2027 to 2034, signaling a significant shift in the sporting landscape and marking the end of an era for ADDYY in German football.
ADDYY’s trailing-12-month EBIT margin of 1.31% is 82.8% lower than the industry average of 7.61%. However, the stock’s trailing-12-month cash from operations of $2.90 billion is 951.9% higher than the $276.02 million industry average.
ADDYY’s revenue and levered FCF have grown at CAGRs of 5.1% and 25.2% over the past three years, respectively. However, over the same period, the company’s EBITDA and EBIT have decreased at respective CAGRs of 13% and 27.7%.
ADDYY’s net sales declined 7.6% year-over-year to €4.81 billion ($5.19 billion) in the fourth quarter that ended December 31, 2023. But the company's gross profit rose 5.5% year-over-year to €2.15 billion ($2.32 billion). Its other operating expenses decreased 9.7% from the year-ago quarter to €2.55 billion ($2.75 billion).
However, the company incurred an operating loss of €377 million ($406.84 million) during the quarter. As of December 31, 2023, its total assets amounted to €18.02 billion ($19.45 billion), compared to its total assets of €20.30 billion ($21.90 billion) as of December 31, 2022.
Analysts expect ADDYY’s revenue for the fiscal year ending December 2024 to grow 5.3% year-over-year to $24.38 billion. However, the company’s revenue is estimated to decline 1.3% year-over-year to $5.74 billion for the first quarter that ended March 2024. ADDYY further surpassed consensus revenue estimates in three of the trailing four quarters.
Shares of ADDYY have gained 46.5% over the past year to close the last trading session at $112.08. Also, the stock soared marginally intraday.
ADDYY’s mixed outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ADDYY has a C grade for Value, Momentum, Stability, and Quality. It is ranked #19 out of 34 stocks within the Athletics & Recreation industry.
In addition to the POWR Ratings stated above, one can access ADDYY’s Growth and Sentiment ratings here.
Stock #1: NIKE, Inc. (NKE)
NKE designs, develops, and markets athletic footwear, apparel, and accessories globally under brands like NIKE, Converse, and Jumpman. Its products are distributed through retail stores, digital platforms, and independent distributors, serving both athletic and casual markets.
NKE’s wholesale segment is under strain due to declining retailer orders and challenges in online sales. Retailers are also slashing prices on NKE sneakers twice as much in 2024 compared to two years prior, challenging the brand’s pricing power amid fierce competition.
On April 1, 2024, NKE paid a quarterly cash dividend of $0.370 per share on the company’s outstanding Class A and Class B Common Stock. The company pays $1.48 annually, which translates to a yield of 1.57% on the prevailing price level, which is higher than its four-year average dividend yield of 0.99%.
The company has raised its dividend payouts at a CAGR of 10.9% and 11.1% over the past three and five years, respectively. Moreover, NKE boasts an 11-year record for consecutive dividend growth.
NKE’s trailing-12-month CAPEX/Sales of 1.80% is 41.1% lower than the industry average of 3.05%. However, its trailing-12-month cash from operations of $7.23 billion is significantly higher than the $276.02 million industry average.
NKE’s revenue and EBITDA have grown at CAGRs of 5.9% and 4.1% over the past five years, respectively.
During the third quarter, which ended February 29, 2024, NKE’s revenues increased marginally year-over-year to $12.43 billion. The company’s gross profit rose 3.6% from the previous year’s quarter to $5.56 billion. However, its net income and EPS decreased by 5.5% and 2.5% from the year-ago quarter to $1.17 billion and $0.77, respectively.
Street expects NKE’s revenue and EPS to rise marginally and 14.4% year-over-year to $51.66 billion and $3.70, respectively, in the fiscal year ending May 2024. However, the company’s revenue and EPS are estimated to decline 2.3% and 5.6% year-over-year to $12.65 billion and $0.89, respectively, for the first quarter ending August 2024.
Additionally, NKE surpassed consensus EPS estimates in three of the trailing four quarters.
NKE’s stock has soared 4.9% over the past six months to close the last trading session at $93.98. However, the stock has declined marginally intraday.
NKE’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system.
NKE has a C grade for Growth, Momentum, and Stability. It is ranked #4 in the same industry.
Click here to see NKE’s additional ratings for Value, Sentiment, and Quality.
What To Do Next?
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NKE shares were trading at $91.95 per share on Monday morning, down $2.03 (-2.16%). Year-to-date, NKE has declined -15.01%, versus a 10.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
Are Nike (NKE) and Adidas (ADDYY) the Top Sportswear Stocks to Buy Today? StockNews.com
