Adidas Lacks Infrastructure to Grow U.S. Business

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Adidas (ADDYY) maintains an estimated 10% of the U.S. footwear and athletic apparel market, but CFO Harm Ohlmeyer says the company’s infrastructure has prevented further growth. The demand apparently already exists, but delivery issues plagued the company throughout H2 2017. The (medium-term) goal is to control 15-20% of the U.S. market share, as it does in every other market it operates within (according to Ohlmeyer); so ADDYY is focused on building out the logistics to handle the business. Ohlmeyer also noted that while Reebok remains unprofitable, he expects to see growth (in the U.S. market) from the restructured company in 2018.

Howie Long-Short: Back in November, ADDYY reported Q3 ’17 sales rose 9% (to $6.6 billion); with U.S. revenue up 23% YOY to $1.3 billion. In late December, (NKE) reported Q2 ‘18 revenue within the region was -5% YOY to $3.5 billion. The U.S. remains NKE’s largest and most profitable market, but the company hasn’t experienced double-digit revenue growth since Q3 ’16. As long as leisure (as opposed to performance) remains popular within the footwear and athletic apparel sector, ADDYY is positioned to continue to outperform (and shrink the gap with) NKE, in the U.S. Of course, personalization and customization is also trending within the industry; so, it’s possible performance gear could be in vogue, sooner than later.

Fan Marino: The NBA released a list of players with best-selling jerseys (on NBAStore.com) during Q4 2017. Steph Curry (UAA) led the way, with LeBron (NKE), Durant (NKE) and Giannis Antetokounmpo (NKE) right behind. Adidas was represented in the Top 10 by Kristaps Porzingis (5), Joel Embiid (6) and James Harden (10).

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Analyst Predicts 30% Decline for Under Armour, “No Fundamental Recovery in Sight”

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Susquehanna Financial Group Analyst Sam Poser has urged investors to sell Under Armour (UAA), predicting the share price will drop 30% in 2018; gains the company realized over the last 2 months. Poser believes the company’s decision to advertise with low-end retailers (i.e. KSS, DSW) is having an adverse effect on its efforts to sell product to “better retailers” (i.e. DKS, HIBB); insisting “there is no fundamental recovery in sight.” Stifel Analyst Jim Duffy has a contrary opinion, he’s pleased with the company’s recent cost savings initiatives and improved performance and foresees growth opportunities both internationally and within their footwear division.

Howie Long-Short: Following release of Poser’s note on Monday morning, shares declined 5.5%; closing at $15.11, the lowest the stock has been priced at since Summer ’13. Need a reason to believe UAA can turn it around? In June ’17, the company hired Patrik Frisk (former ALDO Group CEO) as President and COO. The 30-year industry veteran is considered an expert in preparing companies for a sale.

Fan Marino: Sloane Stephens, Under Armour’s long-time top female tennis endorser, has parted ways with the company and signed with Nike (NKE). Stephens, who signed with the brand as a teenager in 2010, won the 2017 U.S. Open wearing UAA tennis apparel. Financial terms of the deal were not disclosed.

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Amazon Takes on The Sports World; 25 Companies That Will Be Affected

Amazon has been credited with killing everything from book stores to electronics retailers since its 1994 launch. Now, with a market cap +/- $570 billion and $16 billion in annual operating cash flow, the company is taking aim at the sports world. In our final newsletter of 2017, we look at 4 of AMZN’s recent initiatives and the 25 companies most likely to be affected in 2018.

Amazon Expands Brand Registry Program, Now Includes Nike

In June, Nike (NKE) agreed to join Amazon’s brand registry program; seeking to curb counterfeiting and non-licensed selling within the e-commerce marketplace. The partnership also supports the athletic apparel and sneaker brand’s initiative to boost revenue through a shift to digital and DTC sales, relying less on struggling retailers. Competitors Adidas (ADDYY) and Under Armour (UAA) already have direct-sales deals in place with AMZN.

Names to Watch: FINL, DKS, FL, HIBB, BGFV; LON: SPD, LON: JD

Howie Long-Short: Athletic apparel and sneaker retailers count on NKE (70% of FL business comes from NKE); but NKE launched its “Consumer Direct Offense” strategy in fiscal Q1 ’18, increasing e-commerce business 19% YOY. Mediocre retailers beware, the company is maintaining just a few dozen wholesale relationships as it looks to increase its e-commerce business (from 15% of revenue to 30% over the next 5 years).

Amazon Entering Private-Label Sportswear Business

In October, Amazon (AMZN) announced it was entering the private-label sportswear business and working with the same Taiwanese suppliers, Makalot Industrial Co. (TPE: 1477) and Eclat Textile Co. (TPE: 1476), that some of the world’s biggest athletic brands use. Elcat’s involvement is particularly noteworthy as the company manufactures high-performance sportswear for Nike (NKE), Lululemon Athletica (LULU) and Under Armour (UAA).

Names to Watch: NKE, UAA, ADDYY, LULU; TPE: 1476, TPE: 1477

Howie Long-ShortAMZN wants to be in the private-label clothing business because it pushes retailers to sell inventory on the e-commerce site. Should a retailer choose not to, AMZN will simply produce the item themselves and compete directly against the brand.

The Pursuit of Exclusive Broadcast Rights

In September, the company hired Brian Potter to lead its sports video business. In November, Jim DeLorenzo, head of sports, Amazon Video, said the company was pleased with viewership numbers, engagement and the reliability/quality of the cloud-based streaming service during its season long experiment streaming Thursday Night Football (10 games, $50 million); though it is too early to say if the company will pursue future exclusive sports broadcasting rights. The company has since done deals that will deliver Prime subscribers 37 ATP tour events (previously owned by SKYAY), the AVP Beach Volleyball tour each of the next 3 summers and docu-series on Michigan Football.

Names to Watch: CBS, DIS, FOXA, CMCSA, FB, GOOGL, NFLX, AAPL, SKYAY

Howie Long-Short: NFL Senior VP, Digital Media, Vishal Shah recently said “we continue to think some of the best days are ahead [for traditional TV partners] despite some shifts in the media landscape.” That doesn’t sound like linear television will be excluded in the next round of negotiations, but the NFL is encouraging interested media companies to bid on both television and streaming rights for the leagues TNF package; leaving the door ajar for the tech giants to receive exclusivity for the first time.

Twitch: The Future of Game Broadcasts?

Twitch, the live-streaming platform most often associated with video games, has agreed to stream up to 6 live G-League (Gatorade sponsored NBA minor league) games. Broadcasts will include interactive overlays (viewers can click a team name/logo for player, team, game and season stats), a loyalty program to reward viewer engagement during broadcasts (i.e. custom emotes for group chat) and the ability for users to provide their own live commentary (over the game feed) via the Twitch co-streaming feature.

Names to Watch: CBS, DIS, FOXA, CMCSA, TWX, RCI, MSGN

Fan Marino: NBA Commissioner Adam Silver has gone on record stating he’d like to see changes in the way sports broadcasts are presented; pointing out the lack of live stats and chatter surrounding the broadcast, that gamers have become accustomed to. I’m not ready to give up Mike Breen, Marv Albert and Ian Eagle for Towelliee; but it’s worth watching to see if anyone else is.

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Under Armour Investors Concerned Plank No Longer Focused on Company

Under Armour (UAA) investors have expressed concerns that CEO Kevin Plank is focused on Plank Industries, his private investment firm, and not on the struggling athletic apparel manufacturer. While “2017 sucked” (Kevin’s words, not mine) for UAA shareholders, Plank Industries (which includes a horse breeding and racing operation) opened a boutique hotel, a whiskey distillery and raised $233 million for a real estate venture in Baltimore. In June, UAA hired Patrik Frisk (former ALDO Group CEO) as President and COO. Frisk has since taken on a more public leadership role, speaking on the October earnings call; offering further evidence to those that believe UAA is no longer Plank’s top priority. Plank insists his “job is running Under Armour, period”; with Plank Industries’ Chief Executive Tom Geddes saying that Plank only reviews his outside investments on a quarterly basis.

Howie Long-Short: In 2017, UAA posted net losses in consecutive quarters, a quarterly sales decline (for the 1st time since going public) and laid off 300+ employees (and a handful of C-level executives) as the stock declined 45.7% YTD; so it’s understandable shareholders are looking to assign blame. For comparison purposes, NKE who had its own set of struggles in ‘17 is up 24% YTD (ADDYY is +13.2%). Regardless of Plank’s involvement, the company is in good hands with Patrick Frisk. Frisk has 30+ years of experience in apparel and retail, having led VF Corp. (VFC) brands The North Face and Timberland before joining Aldo Group.

Fan Marino: Under Armour has agreed to a 10-year deal with Major League Baseball that will make the brand the league’s official uniform supplier beginning with the 2020 season. UAA will be the exclusive provider of all on-field uniform components including jerseys, base layers, outerwear and training apparel. While it’s the company’s first professional uniform deal, they’ve been partners with MLB since 2000; initially as a base-layer supplier (2000) and then becoming a footwear partner (2011).

Under Pressure at Under Armour, CEO Says His Eye Is on the Ball

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U.S. Wearables Market Struggles, UAA, ADDYY and ASCCF Focus on Software

The U.S. wearables market (i.e. smart watches, fitness trackers) has struggled to reach the mainstream, with less than 20% of adults expected to use wearable tech at least once/mo. in 2018. eMarketer projects wearable use will increase 11.9% YOY over the coming 12 months, but that growth percentage is down from 15.2% YOY in 2017 (and expected to slow to 7.7% in 2019). Smart watch sales will drive the increased usage, accounting for 55% of all wearables by 2022 (up from 21% in ’16). Not everyone is convinced wearables have reached peak growth though, IDC anticipates the number of devices shipped will double by 2021 (accounting for higher adoption rates in China) and CCS Insight anticipates wearables becoming a $34 billion industry by 2020.

Howie Long-Short: Under Armour (UAA) and Adidas (ADDYY) have both recently exited the wearable tech space. UAA announced in November it would no longer manufacture fitness trackers, instead building software to integrate with AAPL and Samsung (5930) products, while earlier this month ADDYY announced that it was closing its Digital Sports Division to re-shift its focus on app platforms. While those exits don’t bode well for IDC & CCS’ projections, the wearables market has one potentially game-changing card to play; if it can generate meaningful data reflecting the health benefits associated with usage, subsidized (i.e. insurance) cost programs (which would theoretically result in increased sales) could follow.

Fan MarinoAsics (ASCCF) also recently entered the fitness software space, introducing a mobile application that offers consumers on-demand workouts. Entitled Asics Studio, professional trainers guide users through workouts that are synced with pre-selected playlists to recreate the atmosphere of a boutique fitness class. Strength training, treadmill, fusion (strength and cardio package), outdoor running, elliptical and indoor cycling classes are all available for $9.99/mo. The latest company looking to cash in on the wearable data and analytics market, expected to be worth $838 million by 2022.

Wearables still slow to catch on in the U.S.

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NLL Commissioner Discusses Future Expansion, League’s Broadcast Strategy & Marquee Sponsors

The National Lacrosse League has kicked off its 32nd season. The 2016-2017 season was dramatically different from the first 30 though, with Commissioner Nick Sakiewicz forging a new path for the league. JWS had the chance to connect with the former MLS Executive of the Year in a wide-ranging interview. Part 2 (of 2) addresses league’s future expansion plans, its broadcast strategy and marquee sponsors.

Part 1: https://johnwallstreet.com/nll-commissioner-nick-sakiewicz-discusses-expansion/

Where can we expect the NLL to expand to next?

Sakiewicz: We love Ohio. Ohio is a dynamic lacrosse market. We’re looking at Columbus, Cleveland and Cincinnati. The New York market is very high on our list. We have several interested potential investors; in the Long-Island market particularly, for the newly renovated Nassau Coliseum. I wouldn’t be shocked if the New York market was in the next round of expansion.  

You won’t find NLL games on linear television. Why did you guys decide to pursue the digital route?

Sakiewicz: For many years, the league was doing the same thing that we did in the early days of Major League Soccer; which was to acquire time on a network, spend a lot of money producing it (the games) and putting it (the broadcast) out there with very little promotion. We decided the best path for the NLL was to go all digital all the time. We know every user who watches us on TV, so we can create a one-on-one DTC relationship and engage with that fan on an ongoing basis; linear TV didn’t really give us that. We also control our own promotion. The OTT/DTC experience gives us the horsepower to unlock our product to a much wider universe. As we go forward, I think we’ll be looking at how we distribute NLL TV more widely.

Does that mean ESPN+ and Facebook Watch? Twitch?

Sakiewicz: All of the above. We are having conversations with everybody. It’s funny, 5 years ago when you did an RFP to offer your rights to the broadcast world; you might have had 5 or 6 companies on that bid list. Today there are 26 companies that want to steam live content to their audiences.

Who are the league’s biggest sponsors?

Sakiewicz: The league never really had a stable of sponsors that we could rely on. We’ve added 11 or 12 over the last 12 months. The biggest ones are Under Armour (UAA) and New Balance, our apparel and equipment sponsors. 

Howie Long-Short: New Balance Chairman Jim Davis owns +/- 95% of the Boston-based company, that counts lacrosse brands Brine and Warriors Sports as subsidiaries. New Balance reported $3.8 billion in ’16 sales; making it Forbes’ 111th largest privately held company. Of course, Under Armour is public; with the company shares up nearly 10% (to $15.17) since Stifel Nicolaus upgrade its price target on the company from $12 to $17, last Friday.

Fan Marino: Nick mentioned the league’s digital approach gave it much wider audience. 12 months after the launch of NLL TV, the OTT service has 25,000 subscribers; 5x the amount the league drew on any linear network. Last season, the Twitter (TWTR) NLL Game of the Week averaged 344,000 fans (avg. view time of 39.7 minutes). Twitter will continue to stream games in 2018 and the league has added CBS Sports Digital as a distribution partner.

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Under Armour Shares Spike as Analyst Increases Price Target 42%

Under Armour (UAA) shares jumped nearly 10% on Friday (to $15.17), as Stifel Nicolaus analyst Jim Duffy upgraded his rating on the company from “hold” (assigned in October ‘16) to “buy”; while increasing the target price from $12 to $17(41.66%). Duffy anticipates a more stable athletic apparel/footwear sales environment in ’18, as demand for the company’s products has improved and price competition is showing signs of abating. Duffy also predicts that UAA’s optimized operational approach would begin to benefit the company bottom line in ’18, after years of overly aggressive expansion. Shares of the company reached a 5 ½ year low on Nov. 3rd ($11.61), following the release of a disappointing Q3 earning report; down 78% from a record high ($53.78) in September 2015. Despite Friday’s price increase, share prices remain down 47.8% YTD.

Howie Long-Short: Duffy remains an outlier among Wall Street analysts, with just 6 of 36 (FactSet) maintaining a“buy” rating (19 neutral, 11 sell) on the company and an average price target 15% below the current share price ($12.88). It’s worth noting that at least 5 high-level executives have left the company since October, but that shouldn’t be a cause for alarm. The departures come following the Q3 arrival of President & COO Patrik Frisk (formerly CEO Aldo Group); indicating a change in leadership direction, not instability within the company.

Fan MarinoUAA had the attention of Bay Area sneakerheads late last week, releasing 2 new colorways of the Curry 4; “more dubs” and “more dimes”. In an elaborate marketing campaign, the company sent fans on a digital scavenger hunt; those that found hidden drop zones were rewarded with pairs of autographed sneakers, delivered by drone. Check out this video of one of the drops, cool stuff.

Here’s Why Under Armour Inc Stock Surged Almost 12% Today

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