Puma: Female Athletes Do Not Translate on a Global Basis, Signs Entertainers

Puma

The development of the Puma SE (PMMAF) women’s division (now 1/3 of all company revenue) has helped lead the company’s revival; going from $6.3 million in ‘13 profits to $161.5 million over the first 9 months of 2017. CEO Bjorn Gulden attributes the turnaround to their relationship with Rihanna (began in ’14), believing she made the brand “hot again with young consumers”. Gulden signed Rihanna after coming to the realization that while male basketball and soccer stars translate on a global basis (see: GSW popularity in China), it is difficult to find a female athlete who could have the same impact; that female entertainers would have to fill the void. With the turnaround nearing completion, Puma parent company Kering SA (OTC: PPRUY) announced late last week it would be spinning off the sportswear brand; allocating 70% of Puma shares to Kering SA shareholders.

Howie Long-Short: NPD Group, Senior Industry Advisor, Matt Powell has been vocal that Adidas’ (ADDYY) rapid growth over the last 3 years has far more to do with their product line (see: Superstar, NMD, Stan Smith) than Kanye West; his signature line is produced in such limited quantities it doesn’t move the needle. I checked in with Matt to see if he thought Rihanna was making a bigger impact for Puma. He acknowledges Puma’s business turned after signing Rihanna, but isn’t prepared to give her the credit Gulden does; like Adidas, he says Puma’s growth (stock up 45% over last 12 mo.) has more to do with the quality of their products (see: Fierce, Fenty Creeper, Basket Platform) than her celebrity.

Fan Marino: Puma may not have big name female athletes on its roster, but it has a who’s who of female celebrities; Rihanna (59.4 million IG followers), Kylie Jenner (100 million) and Selena Gomez (132 million). For comparison purposes, the company’s biggest male endorsers; Arsenal F.C. and Usain Bolt, have 10.6 million and 7.9 million respectively. Females also accounted for 62% of all U.S. retail athletic apparel sales in 2017 (per NPD Group). Perhaps Gulden is on to something.

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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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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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Adidas Takes Macro View, Competing with Netflix for Share of Wallet

Adidas Global Creative Director Paul Gaudio believes the company isn’t just competing with rival footwear and apparel manufacturers (i.e. NKEUAAPMMAF etc.), but with anyone “competing for share of wallet.” Gaudio’s premise assumes that consumers have a fixed budget for recreational purchases and weigh the value of a product not just against its immediate competitors, but against all other products under consideration prior to purchase. ADDYY isn’t the first company outside television and film to be threatened by the blue-chip company; in 2016 Darden (DRI) CEO Gene Lee said the restaurant industry was competing with what he calls today’s “new necessities” (including: smart phones and NFLX) for discretionary dollars. ADDYY reported a Q3 ’17 sales increase of 9% YOY (to $6.6 billion) and profit that increased 30% YOY (to $610 million).

Howie Long-Short: While I admire Mr. Gaudio’s macro view on consumer spending, U.S. consumer confidence remains near a 17 year high. Consumer confidence measures feelings about current and future economic conditions, with an optimistic consumer purchasing more goods and services. If consumer confidence remains high, NFLX isn’t a threat to ADDYY; however, if consumers begin to pull back the reigns on spending (should the economy falter) it’s reasonable to think they will begin asking if that new pair of NMDs is worth forgoing 12 months of binge watching.

Fan Marino: Kanye West got Kim Kardashian a portfolio of blue-chip stocks including; Disney (DIS), Apple (AAPL), Amazon (AMZN), Adidas (ADDYY) and Netflix (NFLX) for Christmas! The portfolio included; 920 shares of DIS (valued at +/-$98,500) and 955 shares of ADDYY (valued at +/- $96,500). That sure beats the luggage I got for Hanukkah as a 16-year-old. Thanks dad (eye roll).

Adidas considers Netflix as competition

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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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Vince McMahon Sells $100 Million in WWE Stock, XFL 2.0 Next?

Chairman and CEO of World Wrestling Entertainment (WWE) Vince McMahon sold 3.34 million company shares, worth more than $100 million (shares closed at $31.87 on Thursday); noting the proceeds were “primarily to fund a separate entity from the Company, Alpha Entertainment LLC, which he established to explore investment opportunities across the sports and entertainment landscapes, including professional football.” On December 16th, Alpha filed for 5 different trademarks on “XFL”; in addition to recently registered marks on “URFL”, “United Football League”, “UFL” and “For the love of Football”. The XFL ran for just one season before folding in 2001.

Howie Long-Short: WWE shares hit an all-time high earlier this week ($32.92), so while Vince is selling a decent chunk of the company (4.3%); he’s cashing out at the right time. He’ll also still owns 41.8% of all outstanding WWE common shares (with 82.8% of the voting power). I simply question the feasibility of the XFL 2.0 success. The league lost $70 million the first time around and had the benefit of NBC’s (CMCSA) promotion behind it. Does a few extra months of training camp really make a difference? Fool me once (for a half), shame on you. I won’t be fooled again.

Fan Marino: While on the topic of upstart leagues, LaVar Ball’s Junior Basketball Association seems to be based on flawed logic. The top HS players can get paid $1 million to go overseas, so they aren’t playing for $100,000; and there is no market to watch second-tier HS players, without the emotional attachment of a college jersey on them. Oh, and who is funding this league? BBB is the apparel and sneaker provider, eliminating any potential for the usual suspects (NKEADDYY) to participate.

Vince McMahon sells $100 million of WWE stock as XFL reboot plan continues

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