Despite The Noise, Athletic Trends Can Return To Growth

Foot Locker, Inc. (NYSE:FL) dramatic post-second quarter marks a turning point in the athletic footwear market. The stock’s crash dominated headlines as an industry that gained lots of media attention over the past few years finally came to a head.

Foot Locker’s woes certainly created some noise and speculation that the industry could take years to recover, but it likely could be more representative of the retail industry than footwear brand’s health. Brands are continuing to opt for strategic partnerships and direct to consumer.

“We once again show a clear preference for brands over retailers based on relative ability to manage near-term trend/channel shifts and less potential earnings downside in a negative sales environment,” said Baird Equity Research analyst Jonathan Komp.

Another key thing to note is that in a tough environment it may be easier for a brand to initiate a turnaround or adapt its strategy to the market than a retailer who is heavily dependent on brand partnerships, which are held almost held hostage to its biggest retail partners.

The fall of the athletic retailers has proven to be more indicative of retail health and shifting consumer preferences to make purchases than a trend shift away from athletic apparel. According to Komp, the outdoor brands are well positioned based on clean inventories and are setting up a better Q4/2018 scenario.

Baird's Current Retail Ideas

• VF Corp (NYSE:VFC): An upward bias to estimates and potential for further acquisitons justify valuation at/above current levels.
• Wolverine World Wide, Inc. (NYSE:WWW): See upside to estimates and valuation if top-line drivers materialize.
• Nike Inc (NYSE:NKE): Never innovation and restructuring support favorable 6-12 month outlook.
• Under Armour Inc (NYSE:UAA): Despite low near-term conviction, believe brand is capable of driving a multi-year sales/earnings recovery.
• Columbia Sportswear Company (NASDAQ:COLM): Remains confident in outlook for 2H17/2018.
• Duluth Holdings Inc (NYSE:DLTH): Differentiated omni-channel brand with substantial whitespace opportunity.

Related Links: Foot Locker May Not Gain Traction Until 2018Breaking Down The Footwear Sector: Adidas Pipeline Remains Strong, Under Armour Under Pressure________Image Credit: Used with permission.