Analyst Says Rising Global Middle Class May Bring Higher Demand to the Sportswear Industry
Macquarie's Laurent Vasilescu detailed his views on a few of the big Sportswear players in a research note late Thursday evening. The analyst is bullish on the group as a whole, estimating 9 percent annual growth and a market size of nearly $500 billion by 2020.
Vasilescu attributes his bullish outlook to the combination of important components.
- The Organization of Economic Co-Operation and Development projects a rise in the global middle class from approximately 25 percent in 2014 to over 40 percent by 2020.
- Despite the recent global recession, the top 20 sportswear brands have posted an average CAGR of 10 percent for the past ten years.
- U.S. Census data shows that participation in sports grows with increases in income, thus driving a higher demand for sport apparel.
- Regional revenue growth for top brands have out paced regional GDP growth.
- Eurostat and U.S. Consumer Expenditure data show that consumption of footwear and apparel increase across income quartiles.
- Due to large U.S. market fragmentation, top brands will benefit from sporting good chains having less leverage to demand price concessions.
- A positive outlook on the apparel supply chain due to flexibility and strong gross margins.
Additionally, Vasilescu initiated coverage on shares of VF Corp. (NYSE: VFC) with an Outperform rating and $71 price target, on shares of Under Armour (NYSE: UA) and Nike (NYSE: NKE) with Neutral ratings, and downgraded shares of Columbia (NASDAQ: COLM).
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