Real Madrid Inks Most Lucrative Kit Sponsorship Pact in Soccer History

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Real Madrid has agreed a 10-year deal with Adidas worth at least $1.25 billion, the most lucrative kit manufacturing pact in soccer history (previously: Manchester United/Adidas worth $97 million/year). The deal’s value, worth more than twice the $59 million/year Los Blancos currently earns from its kit sponsorship agreement (also with Adidas), could rise to as much as $171 million (from $125 million) annually should Adidas reach merchandising and performance milestones. The newfound revenue will be used to help fund the redevelopment (cost: $650 million) of Santiago Bernabeu stadium (their home field) and to sign top-tier talent; the club has been relatively quiet in recent transfer windows.

Howie Long-Short: While Real Madrid re-signed with Adidas (been with company since ’98), the German apparel company wasn’t bidding against themselves; Nike and Under Armour were also interested in outfitting the La Liga club.

For perspective on the deal’s size, consider that Nike is paying the same amount ($1 billion over 8 years) annually to outfit (game jersey, shorts & socks) all 30 NBA franchises. If you’re wondering who signed the better deal (Nike or Adidas), consider that the NBA boasts of more followers/fans (1.5 billion to 689 million) across social media platforms and delivers the greatest “commercial impact” (according to the POWA Index) of any brand in sports.

Fan Marino: Speaking of the NBA, Monumental Sports & Entertainment announced a multi-year jersey patch sponsorship agreement with Geico that will result in the insurance company’s logo occupying space on the Washington Wizards, Washington Mystics (WNBA) and Capital City Go-Go (G-League) game uniforms. Financial terms of the deal were not disclosed, though it’s known that the average patch sponsorship deal was worth $6.5 million to NBA teams in ’17-’18; the Warriors have the league’s most lucrative agreement (with Rakuten), worth $20 million/season. The Thunder and Pacers are the only NBA teams yet to take advantage of the newfound revenue stream.

MLS executives watched NBA teams bring in over $100 million in new corporate sponsorship revenue last season (from jersey patches) and decided they too should increase kit sponsorship inventory. Starting with the 2020 season, MLS clubs will have the ability to sign secondary sleeve sponsorship pacts (each team has a main partner, Houston is the exception); deals projected to be worth $1 million to $1.5 million annually. For those wondering, top-end MLS main kit sponsorship deals are worth $3-4 million/year, though it’s said D.C. United (who is replacing Leidos as its main kit sponsor at the end of this season) is looking to re-set the market; the club is reportedly seeking $5 million per/year, a figure that would place them atop the league (LA Galaxy is currently 1st, $4.4 million/year) in kit sponsorship revenue.

European soccer has a gambling advertising epidemic. 9 of 20 EPL clubs and 17 of 24 EFL Championship League teams have gaming companies as their main kit sponsor (sports betting ads also make up 95% of commercials during live matches in the U.K). MLS currently has restrictions on gambling partnerships, but they are said to be “under review by the league”. Gaming companies will certainly have interest in secondary kit sponsorships and they could bring MLS clubs much needed revenue, but here’s to hoping the league opts to avoid the low hanging fruit; a recent study indicated the U.K. has 430,000 “problem gamblers”, including 25,000 between the ages of 11-16. Incessant gambling advertising is contributing to (if not the root of) the problem.

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Nike Remains Tops Amongst Teens – Vans, Adidas, Lululemon and Converse Gaining Ground

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Teenagers continue to rank Nike as their favorite sportswear and apparel brand, but there’s been a “rebalancing towards Adidas”, according to the results of Piper Jaffray’s 36th bi-annual Taking Stock with Teens survey (8,600 teens across 48 states, average age 16); Vans and Lululemon have also gained significant ground on Phil Knight’s business. As a footwear company Nike remains dominant (though its competitors continue to take mindshare) within the demographic; the 41% mindshare NKE posted was more than twice as great as 2nd place Vans (19%, all-time high, #1 amongst upper-income females), Adidas placed 3rd with 14%, while Converse (NKE subsidiary) came in 4th with 5%. Nike isn’t as popular in the clothing category (22% mindshare, down from 25%), but it remains the most popular brand with teens; no other company posted mindshare higher than 9% (American Eagle). Nike.com was reported to be the 2nd “most preferred shopping website”, behind only Amazon.

Howie Long-Short: In late September, NKE reported both sales growth (+10% to $9.95 billion) and an increase in profitability (+15% to $1.1 billion) for fiscal Q1, but news that gross margins failed to meet expectations and a disappointing growth forecast for Q2 has sent the share price spiraling. Shares are down -13.5% since the company reported, they’ll open at $73.35 on Wednesday 10.24.18.

Among the positives, domestic business “returned to strong, sustainable growth” (for a 2nd straight quarter) and digital sales grew +36% YoY. Moving forward, the company anticipates growth coming from millennials, women and its DTC business; the results of the Piper Jaffray survey would seem to indicate NKE is doing a good job within all 3 segments/channels.

Oppenheimer recently raised its rating on the company to outperform ($90 price target), citing “a technical revolution (that) is underway at Nike”. Analyst Brian Nagel opined that investors have yet to realize how the “power of digital will enhance most all aspects of Nike’s business model, including consumer connections, product innovation and manufacturing.” A rebound of the “broader athletic group” and a growing global sportswear market were the other reasons cited in the note.

Fan Marino: 90s fashion and streetwear remain in fashion, so brands like Supreme, Champion and Off-White also performed well in the Piper Jaffray Survey.

J.R. Smith is apparently a fan of Supreme, he got a tattoo of their logo on his right leg during the off-season. However, NBA bylaws prohibiting the display of commercial logos or corporate insignias on player bodies (or hair) will prevent Smith from serving as a walking advertisement within league games; the NBA has told Smith he’s required to cover up the tattoo or he’ll be fined. There seems to be some ambiguity in the rule though, as several active players are in apparent violation but continue to play without issue; Marcin Gortat (Jumpman logo), Carmelo Anthony (Warner Brothers) and Kyrie Irving (Friends, the TV show) are among those that may need to cover their ink in ’18-’19.

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TV Ratings, Ticket Sales Surge as Fans Clamor to See Woods End 5-Year Drought

Woods

On Sunday evening, Tiger Woods ended a 5-year winless streak (’13 WGC-Bridgestone Invitational) with a two-stroke victory, finishing -11 under to take home the TOUR Championship (the final leg of the FedExCup Playoffs). NBC television ratings surged (Sunday’s final round was the highest-rated telecast in FedExCup history) as Tiger chased his 80th PGA Tour win; 2 victories behind the all-time leader Sam Snead. TOUR Championship ticket sales also received the Tiger bump (+170% YoY) last weekend, as fans scrambled to the East Lake Golf Club (Atlanta) to witness “the greatest comeback story in sports history.”

Howie Long-Short: NBC posted a 5.21 overnight rating (meaning 5.21% of all households in metered markets) on Sunday (round peaked at 7.1), representing an audience increase of +206% YoY; NBC also reported the number of minutes streamed (18.4 million) rose +521% YoY. While that would be a big number for most sporting events, it’s peanuts compared to the 13.6 rating the NFL’s Sunday night game (NE at Detroit) drew. Saturday’s 3rd round performed better on a head to head basis, beating every college football game on the slate (with 3.1 overnight rating) except Texas A&M at Alabama (3.5 rating).

While Woods will move the needle for television and ticket sales, he simply doesn’t do the same for golf equipment sales. Back in June ’17, Phil Knight said that despite Woods’ enormous success and popularity, Nike “lost money for 20 years on equipment and balls.” If he didn’t move equipment (apparel is a different story) for NKE in his prime – or at least enough to offset R&D costs -, he’s not going to for TaylorMade either (his current equipment provider).

Woods won the Tour Championship playing with Bridgestone Golf’s TOUR B XS ball. He averaged 304 yards off the tee, finishing 3rd in driving accuracy and 1st in putting average. Bridgestone Golf falls under the Bridgestone Corporation umbrella, best known for their rubber & tire business (world’s largest tire maker). Bridgestone Corp. recently reported operating income for H1 ’18 declined -1.4% (to $1.8 billion) despite net sales remaining flat (to $15.6 billion), a minimal growth from the company’s tire division was more than offset by a -40% YoY decline (to $78.8 million) in OI from its Diversified Products division. The Japan based company trades over the counter under the symbol BRDCY.

Fan Marino: Tiger Woods will lead team U.S.A (against Europe) in their quest to retain the Ryder Cup. The 42nd edition of the annual event will take place at Le Golf National (outside Paris), Friday-Sunday.

The greatest comeback story in sports history? Give me a break. Sure, Tiger managed to come all the way back from cheating on his wife to beat 29 other golfers in non-major (insert eye roll here), but as Ted Berg kindly reminded us, Mario Lemieux was diagnosed with Hodgkin’s disease in the middle of the ’92-‘93 NHL season. Following 2 months of radiation, he returned to the ice (on the same day as his last treatment) and still finished with 12 points (160) ahead of 2nd place (Pat Lafontaine). I don’t know, that sounds like the better story.

Fun Fact: With the win, Woods has now cleared more than $1 billion in career earnings.

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Nike Makes Wise Business Decision, Kaepernick Face of 30th Anniversary Ad Campaign

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Colin Kaepernick has extended his relationship with Nike (has been with company since ’11) and become the face of their new 30th anniversary “Just Do It” campaign. The campaign debuted on Monday with a simple message that read “believe in something, even if it means sacrificing everything” over a picture of Colin’s face. Kaepernick, who has been portrayed as the leader of the NFL player protest movement, has been unsigned (by NFL teams) since the end of the 2016 season. While financial terms of the deal were not disclosed, it’s been reported that Kaepernick’s deal is worth “millions per year” + royalties, putting it on par with the contracts held by the NFL’s top players. The deal is expected to include a “Kaepernick 7” line of shoes and apparel.

Howie Long-Short: Nike made the decision to extend Colin and make him the face of this campaign anticipating backlash from the political right, but the company is wisely playing the long game here understanding any negative short-term noise will be far outweighed by future sales gains. Nike’s target client is America’s youth (18-29), not the 60-year-old racist white guy cutting swooshes off his socks, and Colin remains popular with the younger demographic; in fact, his jersey ranked as the 39th (as of Q2 ’17) best-seller among all NFL players despite his absence from an NFL roster. Sacrificing older, low discretionary-income red state buyers for younger, affluent, progressive buyers in blue states seems like a wise decision; even if most Wall Street analysts refuse to say so because they’re avoiding the divisive topic.

Sadly, Nike’s decision to sign Colin wasn’t about protesting racism or social injustice (though, the company would like the media to position it as such), but about the bottom line; as Twitter user @MichaelMirer so perfectly put it, “democratic socialists buy sneakers, too”. If the snark went over your head, Mirer is playing off Michael Jordan’s famous line when asked why he avoids discussions about politics – because “republicans buy sneakers, too.”

Nike (NKE) shares declined -3.16% on Tuesday (to $79.60), making it the worst performer within the Dow Jones industrial average, but the decline is not tied to fears over boycotts related to the Kaepernick news. Adidas (ADDYY, -2.4%) and Puma (PMMAF, -2.62%) were also down on Tuesday, leading us to believe the downturn is more closely related to the NAFTA negotiations.

For what it’s worth, according to Apex Marketing Group, the “Just Do It” campaign generated $43 million in media exposure over its first 19 hours; less than one quarter of the responses were negative.

Fan Marino: Nike’s decision to place Kaepernick at the center of a campaign that kicked off just 3 days before the start of the NFL season can’t be sitting well with league owners. Nike is among the league’s top partners and signed a 10-year deal (through ’28) to become the NFL’s game-day uniform and sideline apparel provider back in February; the same league Kaepernick is currently suing in court over allegations its owners have colluded to keep him unemployed because of his activism. Last Thursday, Colin earned a small victory in his grievance against the league as an arbitrator ruled the case can advance.

While Kaepernick’s involvement will certainly draw the most attention, he’s just one of several athletes represented in the 30th anniversary “Just Do It” anniversary campaign. Serena Williams, Odell Beckham Jr., Shaquem Griffin (Seahawks) and Lacey Baker (skateboarder) are all also featured.

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Adidas to Replace Puma as Arsenal Kit Manufacturer, Shares Rise +8% on Q2 Earnings

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Arsenal has agreed to a 5-year $385 million kit deal with Adidas that will replace the club’s existing pact with Puma, at the completion of this season. Adidas will pay +/- $77 million/season (beginning in ‘19) to become the official kit provider of the Gunners, double what Puma had been paying. The deal is being touted as the 3rd most valuable kit pact in the world, behind just Nike’s agreement with Barcelona ($134.5 million/season) and Adidas’ contract with Manchester United ($96 million/season).

Howie Long-Short: Adidas (ADDYY) issued Q2 earnings on Thursday, reporting group sales rose 10% YoY (to $6 billion) during the most recent quarter. North America (+16%), Greater China (+27%) and the e-commerce sector drove the growth. Perhaps ADDYY’s most impressive feat has been continuing to grow the top line without resorting to discounts; the company reported gross margins rose +2.2% (to 52.3%) in the quarter ended in June, as the company continues to sell shoes at full-price. Shares increased +8% on Thursday’s report, closing at $119.89.

Stephen Wilmot (WSJ) made a strong argument that ADDYY shares are undervalued. Even after Thursday’s 8% jump, Adidas is trading at just 23x prospective earnings; compared to Nike’s 29x. That’s despite Adidas growing sales (16% vs. 3% in U.S.) and profits faster than their rival, not having to deal with any potential #MeToo backlash or increase employee wages.

Fan Marino: The newfound revenue should give Arsenal additional cash for transfers next summer. It’s been reported that new manager Unai Emery was given just $90 million to work with during this summer’s window.

Arsenal will become the 7th Premier League team to be outfitted by the German footwear and apparel company, joining Manchester United, Leicester City, Cardiff, Fulham, Watford and Wolves.

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Rice Commission Recommends Summer Camps as Alternative to Shoe-Sponsored Tournaments

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The NCAA Commission on College Basketball has recommended the installation of regulated summer camps to help offset the number of shoe-sponsored tournaments (think: AAU) that top prospects participate in. Seeking to stem the influence shoe companies have over players within the recruiting process, the Rice Commission has proposed regional events that would be run by USA basketball and supersede (in terms of talent/coaches attending) existing tournaments. The Commission isn’t recommending the elimination of all shoe-company sponsored events though, as the proposed camps would only account for +/- 15% of the prospects in a given class; USA Basketball CEO Jim Tooley explained, “our job is to help grow the game, not stifle it.” Recommendations are expected to be voted on within the next 30 days; if approved, the changes could be implemented in time for summer ’19.

Howie Long-Short: Nike, Adidas and Under Armour are all active on the travel basketball circuit, each running their own leagues.

On May 3rd, Adidas reported that efficiency savings drove bottom line growth +17% (to $647 million) in Q1 ’18. Accounting for currency effects, sales rose roughly 10% YoY (to $6.4 billion) with the company’s Adidas Originals line and running, training and soccer verticals driving the growth. North American sales rose +21% YoY and sales in China rose +26% YoY; Asia-Pacific (+15%) and Latin America (+10%) also experienced double-digit growth during the most recent quarter. NPD Group Analyst Matt Powell is reporting that “H1 footwear sales are up more than 20%; apparel even better.” The company will publish H1 financial results on August 9th.

Nike (NKE) reported fiscal Q4 earnings on June 29th. News of sales growth in North America (+3%) following 3 straight declining quarters, increased revenue growth guidance for fiscal ‘19 and a $15 billion share buyback plan sent shares rising +11% to an all-time high ($81.00). The share price has declined -4.5% since, closing on July 30th at $75.96.

Under Amour (UAA) is the most recent shoe/apparel company to post financials, having done so on July 26th. While the company’s U.S. business failed to gain much momentum (+1.6% YoY), international sales surged (+28% YoY) during Q2 ‘18 and the company managed to reduce excess inventory; news that was welcomed by investors, as shares rose 5% on the report.

Of course, Q2 wasn’t a “victory” for UAA, the company reported a quarterly net loss of $95.5 million and announced it would be committing another $80 million (in addition to the $130 million it already committed) to its long-term restructuring efforts. Despite the heavy spending on a turnaround (focus going from men to women/kids, $80-$100 price point) and continuing headwinds (think: leisure over performance), UAA shares are up +39% YTD; closing on Monday at $20.11.

Fan Marino: The NCAA is likely to continue allowing coaches to attend shoe-sponsored tournaments in April (at least for now), so the Commission’s recommendations are just for the July recruiting period. While that makes little sense (and is unlikely to curb corruption), the NCAA is already complaining that the $9 million price tag to replace the summer’s recruiting events is prohibitive; they certainly won’t go for the spring events too, at least not now. It’s tough to pity the NCAA though knowing the organization takes in +/- $1 billion in media rights revenue annually through 2032.

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All 3 Winners of 2018 Men’s Majors Had Mixed Golf Bags as Equipment Sponsor Free Agents

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For the 3rd time in 2018, a USGA golfer won a men’s major without an equipment sponsorship. Francesco Molinari (British Open) joined Brooks Koepka (U.S. Open) and Patrick Reed (Masters) as tour members with Nike apparel/footwear deals, but without an exclusive equipment provider; enabling each to play the 14 clubs (and balls) best suited to their game. Francesco Molinari and Brooks Koepka have been playing as equipment free agents since Nike’s ’16 exit from the golf equipment space, while Patrick Reed left Callaway following the ’17 season after attributing his tour struggles to the equipment. Molinari won last weekend’s British Open playing with TaylorMade clubs and a Bettinardi putter (he does have a deal with them), Brooks Koepka won June’s U.S. Open with a mixed bag that included TaylorMade, Nike, Mizuno and Titleist clubs (including a Scotty Cameron putter), while Patrick Reed played Augusta with Ping, Nike, Titleist, Callaway sticks and an Odyssey (Callaway subsidiary) putter. All 3 players won their respective majors using Titleist Pro V1x balls.

Howie Long-Short: Several of the club manufacturers associated with this year’s major winners are publicly traded; including Nike (NKE), Mizuno (TYO: 8022), Titleist (GOLF) and Callaway (ELY).

Golf stocks are far outperforming the S&P YTD; Callaway Golf (ELY) is +37% YTD ($19.06), Acushnet (GOLF) is +13% YTD ($23.83) and the S&P is +5.5% YTD ($2,820.40). While it would be easy to attribute the sales growth to Tiger Woods’ return, both companies have been headed in the right direction for some time; ELY is +104% over the trailing 3 years, while GOLF is +32.75% since its ’16 IPO. The U.S. Golf Economy Report indicated that the industry’s strongest sales growth was coming from the equipment category, a far more logical reason for ELY & GOLF’s outperformance. Both ELY and GOLF are expected to report Q2 ’18 earnings next week (August 2nd).

For those wondering, Bettinardi and Ping have never been publicly traded. TaylorMade was acquired by KPS Capital Partners (P.E.) for $425 million in late ’17.

Fan Marino: Howie may not be willing to credit equipment sales to Tiger’s return, but there’s no doubt that Tiger contending for his first major championship in a decade was the catalyst for last weekend’s British Open drawing the tournament’s highest television rating since ’06 (5.0 overnight); the last time Woods won the claret jug. In fact, the only British Open to draw a larger audience was the 2000 tournament, which Woods also won; to complete the career grand slam. Interestingly, the highest rated tournament of year thus far has been the Masters (7.6 overnight); where Woods failed to make the cut.

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Demand High for LeBron’s Lakers Jersey  

Lakers

LeBron James’ signing (4 Years, $153.3 million) with the Los Angeles Lakers is expected to boost Nike retail sales as the company is both the league’s official jersey manufacturer and James’ footwear outfitter. According to NPD Group, no NBA player sold more basketball sneakers in 2017 than LeBron, a figure that includes sales of both his signature line (LeBron 15) and Soldier series. However, the move is expected to have the biggest impact on jersey sales, not footwear; Fanatics reported that presale orders (NBA store sold out) rose 600% in the first 3 hours following James’ announcement relative to his return from Miami to Cleveland in ’14.

Howie Long-Short: LeBron’s impact on sneaker sales is likely to be minimized by both trends (basketball sneakers aren’t considered to be in fashion) and the market he’s headed to. As NPD Group analyst Matt Powell explains, “L.A. is not an important basketball shoe market”; performance styles sell best in the Northeast.

Nike (NKE) reported fiscal Q4 earnings on June 29th. News of sales growth in North America (+3%) following 3 straight declining quarters, increased revenue growth guidance for fiscal ‘19 and a $15 billion share buyback plan sent shares rising +11.1% to an all-time high ($81.00). The share price has steadily declined since, closing at $76.28 on Tuesday July 3rd.

Wish, an e-commerce application, should also benefit from James’ relocation to Hollywood; the company is the Lakers’ jersey sponsor (for at least the next 2 seasons). According to GumGum (AI company with expertise in computer vision), no company received more value ($21 million) from earned media impressions on social media platforms (only includes content shared by team accounts) than Goodyear (the Cavs jersey sponsor) did during the 2017-2018 season. Wish finished 4th among jersey sponsors, despite the Lakers missing the playoffs and lacking star power.

Wish has raised $1.3 billion to date, but the only way to play the company is via China Everbright; a Hong Kong based financial services company. China Everbright and IDG Capital Partners (PE) launched a joint venture known as Everbright-IDG Industrial Fund; together they led Wish’s $500 million Series F round in November ’16. China Everbright trades over the counter under the symbol CHFFY.

Fan Marino: If you purchased LeBron’s Cavaliers jersey on Fanatics within the last 90 days (or with an AMEX within the last 12 months), you’re eligible for the site’s Jersey Assurance program. The program gives fans the opportunity to exchange the jersey for another player on the team (i.e. Collin Sexton) or the new player’s new jersey (LeBron Lakers) at no charge. However, paperwork for the exchange must be submitted within 14 days, so the clock is running!

It should be noted that despite the assumption LeBron would be leaving Cleveland at the end of the season, his jersey was the 2nd best-selling in the NBA during the postseason (behind Curry) and sales were up 25% YoY during Q2 ‘18.

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Federer Signs $300+ Million Endorsement Deal, Becoming Face of Uniqlo

Uniqlo

Roger Federer has left Nike (after 21 years) for Uniqlo, signing a 10-year endorsement deal worth more than $300 million with the casual wear company. Federer immediately becomes the biggest star sponsored by the brand, joining Japanese tennis player Kei Nishkori and Australian golfer Adam Scott. The 20x grand slam champion, who appeared for his Wimbledon opener (as the men’s top seed) dressed in Uniqlo gear, will continue to wear Nike sneakers as Uniqlo does not have a footwear line. Uniqlo is expected to acquire the rights to the RF logo (owned by Nike) synonymous with the tennis champion.

Howie Long-Short: Uniqlo is a subsidiary of the Japanese retail holding company Fast Retailing (OTC: FRCOY), as are J Brand and Theory. Uniqlo generated $14 billion in 2017 sales, 75% of all FRCOY revenue; CEO Tadashi Yanai intends on growing that figure to $20 billion by 2020, including $10 billion in U.S. sales. Shares of the fast-fashion brand declined 2% on Monday’s news, closing at $44.85.

Nike (NKE) reported fiscal Q4 earnings on Friday. News of sales growth in North America (+3%) following 3 straight declining quarters, increased revenue growth guidance for fiscal ‘19 and a $15 billion share buyback plan sent shares rising +11.1% to an all-time high ($81.00). The good times didn’t last through Monday though, NKE was among the Dow’s biggest losers on the day, down -1.67% (closing $78.32); a decline unrelated to the Federer news.

Nike isn’t the only company using cash to buy back their own shares. Corporate buybacks are occurring at rates never before seen in market history; 31 companies announced buybacks of more than $1 billion in June alone. In total, companies announced record share repurchases totaling $433.6 billion during Q2, up from $242.1 billion in Q1 (previous record). Corporate cash isn’t just being used on buybacks though, companies paid out a record $111.6 billion in dividends during the most recent quarter and the dollar volume ($726.3 billion) more than doubling YoY (quarter ending May 31st) on M&A activity.

Fan Marino: Federer is going to be 37 next month, so Uniqlo is going to be paying him to be a “Global Brand Ambassador” long after he retires. While I can’t justify the figure (Nike was paying him $10 million/year), the decision makes slightly more sense if you understand that unlike Nike, Adidas, Under Armour and now Puma, Uniqlo is a fast-fashion brand that produces performance athletic apparel; as opposed to a sports apparel brand. For comparison purposes, Kevin Durant also has a 10-year $300 million endorsement deal (Nike). LeBron James has a lifetime contract with Nike said to be worth up to $1 billion.

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Fashion Labels Take Activewear Market Share, Activewear Brands Now Reside on 5th Ave

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Activewear brands and the retailers who sell their products have had a difficult start to 2018, as sales were “essentially flat between February and April.” NPD Group senior sports industry advisor Matt Powell attributes the struggles to “the proliferation of fashion brands emulating performance wear” (think: Moncler’s Grenoble collection, BIT: MONC); including high fashion labels like Isabel Marant that are now launching activewear lines. It’s not just the athleticwear labels (think: Under Armour – UAA, Columbia – COLM) that are hurting from the industry crossover though, athletic specialty/sporting goods stores are also struggling as “department stores now capture more activewear sales than the true sports channels.” Activewear is the fashion industry’s fastest growing category, expected to grow 6-7% in ’18; compared with 2-3% for the balance of the fashion and footwear industry.

Howie Long-Short: One company that has not been negatively impacted by the trend is Lululemon Athletica. LULU posted “astonishing” Q1 ’18 results, before increasing its full year financial forecast. Net income grew +141% YoY (to $75.2 million) on revenue that rose +25% YoY (to $649.7 million), with e-commerce growth (+62% YoY), new customer acquisition (+28% YoY, 30% of which were men) and a significant rise in gross margin (from 49.4% to 53.1%) highlighting the quarter. Shares popped 16% (to $122.19) following the June 1st report; they’re up 55% YTD and 135% over the last 12 months despite the February resignation of CEO Laurent Potdevin (workplace misconduct) and other public missteps (think: see-through tights). Adidas (ADDYY), Champion (HBI) and Patagonia were also all strong performers within the activewear category during the first quarter.

Fan Marino: While fashion brands are working to take activewear market share, activewear companies are taking up residency on 5thAvenue (NYC) alongside high-fashion retailers. Why? As Powell explains, “to be next to some of the most prestigious names in the industry really elevates the prestige of the athletic brands.” Adidas, Asics (TYO: 7936) and The North Face (VFC) already have stores open on 5th Avenue, Nike (NKE) and Under Armour have signed leases on space and Puma just announced it’ll be opening a 24,000 SF retail store on the street.

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