The growing interest in sports and fitness is enhancing the athletic wear industry’s outlook. However, companies face challenges like intense competition, inflation, high inventory, and cost pressures.
To address these issues and grow, they are investing in innovation, expanding product lines, improving planning, and focusing on digital marketing and sustainability, while exploring new markets. Amid this backdrop, it could be wise to keep an eye on quality athletic stocks: NIKE, Inc. (NKE) and adidas AG (ADDYY).
The athleisure industry's bright prospects are fueled by increasing consumer preference for comfort and style, driven by remote work and wellness trends. Innovations in fabric technology, the rise of premium products, and the influence of social media and celebrities are shaping new consumer demands and trends in the market.
The Paris 2024 Olympics is boosting athletic wear prospects by driving global sportswear brands to focus on high-performance, premium products. Athletic wear giants NKE and ADDYY are leveraging the Games to revitalize their core athletic image and stimulate sales, betting on enhanced margins and higher-priced footwear to recover from past revenue declines.
Furthermore, the global sports and fitness wear market is expected to grow by $62.3 billion at a CAGR of 4.5% from 2024 to 2028, according to Technavio. This growth is driven by advanced material use and wearable tech innovations, despite fluctuating raw material prices. Additionally, marketing innovation and the rise of online retail further boost accessibility and prospects for the sector.
Considering these conducive trends, let’s analyze the fundamental aspects of the two Athletics & Recreation industry picks, beginning with the second choice.
Stock #2: NIKE, Inc. (NKE)
NKE designs, develops, markets, and sells athletic footwear, apparel, equipment, accessories, and services worldwide. The company provides athletic and casual footwear, apparel, and accessories under the Jumpman trademark; and casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks.
In terms of the trailing-12-month EBIT margin, NKE’s 13.03% is 65.6% higher than the 7.86% industry average. Likewise, its 11.10% trailing-12-month net income margin is 123% lower than the industry average of 4.98%. However, the stock’s 1.69%trailing-12-month Capex / Sales is 44.2% lower than the industry average of 3.03%.
NKE’s revenues for the fiscal fourth quarter ended May 31, 2024, decreased 1.7% year-over-year to $12.61 billion. In contrast, its gross profit rose marginally year-over-year to $5.63 billion. Additionally, the company’s net income and EPS increased 45.5% and 50% over the year-ago quarter, reaching $1.50 billion and $0.99, respectively.
Analysts expect NKE’s EPS for the quarter ending August 31, 2024, to decrease 43.4% year-over-year to $0.53, while its revenue for fiscal 2026 is expected to increase 5.8% year-over-year to $51.85 billion. It surpassed the Street EPS estimates in each of the trailing quarters. Over the past three months, the stock has declined 23% to close the last trading session at $72.33.
NKE’s uncertain outlook justifies its overall rating of C, which translates to Neutral in our proprietary POWR Ratings system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #13 out of 34 stocks in the Athletics & Recreation industry. It has a C grade for Growth, Value, Momentum, Stability, and Sentiment. To see Quality ratings, click here.
Stock #1: adidas AG (ADDYY)
Headquartered in Herzogenaurach, Germany, ADDYY and its subsidiaries design, develop, produce, and market athletic and sports lifestyle products in Europe, the Middle East, Africa, North America, Greater China, the Asia-Pacific, and Latin America. It offers footwear, apparel, accessories, gear, and outdoor footwear.
In terms of the trailing-12-month gross profit margin, ADDYY’s 49.12% is 34.3% higher than the 36.59% industry average. Likewise, its 9.88% trailing-12-month levered FCF margin is 86.7% higher than the 5.29% industry average. On the other hand, the stock’s 3.01% trailing-12-month Return on Total Capital is 52.5% lower than the 6.34% industry average.
ADDYY’s net sales in the first quarter that ended March 31, 2024, increased 3.5% year-over-year to €5.46 billion ($5.92 billion). Likewise, the company’s gross profit rose 18.3% year-over-year to €2.80 billion ($3.04 billion).
For the same quarter, its net income attributable to shareholders and EPS from continuing operations were €170 million ($184.38 million) and €0.96, respectively, compared to a net loss attributable to shareholders and loss per share from continuing operations of €39 million ($42.30 million) and €0.18.
For the quarter ending September 30, 2024, ADDYY’s revenue is expected to increase 8.8% year-over-year to $6.99 billion. Its EPS for fiscal 2025 is expected to rise 103.8% year-over-year to $3.94. Over the past three months, the stock has gained 2.1% to close the last trading session at $124.13.
ADDYY’s uncertain outlook is reflected in its POWR Ratings. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.
It is ranked #8 in the Athletics & Recreation industry. It has a C grade for Value, Momentum, Sentiment, and Quality. Click here to access additional ratings for ADDYY’s Growth and Stability.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
NKE shares were trading at $72.46 per share on Friday afternoon, up $1.05 (+1.47%). Year-to-date, NKE has declined -32.76%, versus a 15.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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