After a relatively flat performance in 2016, the stock market capitalization of the sporting goods sector rose by 19.3 percent in terms of local currencies in the course of 2017, in tune with a generally buoyant trend in the stock exchanges. In dollars, the total market capitalization of the 81 listed companies tracked by Sporting Goods Intelligence increased by 12.4 percent to $364.3 billion.
Our annual stock chart calculates the evolution of each stock in the currency reported by each company until the last trading day of the year, Dec. 29 in this case, taking into account variations in the number of shares. Increases and decreases are weighted by market capitalization to allow comparisons. The year-end valuation of each stock is then converted to U.S. dollars at the exchange rate on that day to determine the total market value of the sector.
The global Down Jones index slightly outpaced the sporting goods sector in 2017 with a gain of 21.9 percent for the year. However, European sporting goods stocks beat the general stock market, posting an aggregate increase of 20.7 percent, led by Adidas, Moncler, Puma and Sports Direct. Comparatively, the FTSE 100 rose by 7.6 percent, the German DAX by 12.5 percent and the French CAC 40 by 9.3 percent.
The valuation of U.S.-based sports companies increased by 19.5 percent, compared with increases of 19.4 percent for the S&P 500 and 24.4 percent for the Dow Jones, as the weaknesses of Under Armour, Foot Locker and Dick's Sporting Goods offset major gains at large companies like Nike and VF Corp. In 2016, the American stocks had recorded a 9.6 percent drop, mainly due to the inventory glut caused by the bankruptcies of The Sports Authority, Sport Chalet and other big sports retailers.
In Asia, big gains at Chinese companies like Anta Sports and Li Ning were in contrast with declines for two large Japanese players, Shimano and Asics. Meanwhile, the Hang Seng in Shanghai jumped by 36.0 percent in 2017, while the Nikkei in Tokyo went up by 17.6 percent.
The largest sporting goods companies performed best last year, with the top ten growing by 24.3 percent on average in local currencies. Eight of those ten posted gains. Among the other public companies in the sector, less than half had increases in market capitalization for the year. Representing 29 percent of the total listed market, up from 25 percent at the end of 2016, Nike contributed substantially to the industry's performance. Its stock ended the year 22.7 percent higher than at the start of it, rebounding from the 23.6 percent decline it had endured in 2016. In contrast with Nike, the Adidas Group's valuation grew by 12.6 percent in 2017, after posting the much bigger gain of 6.8.4 percent in 2016. Adidas is now worth about three times more than in 2015.
Despite some hesitations around the middle of the year, investors got sufficient signs by the end of it that the athleisure trend is still strong, and the weather cooperated for once this past autumn. Companies that generate most of their revenues from athletic shoes and sneakers saw their combined stock market value go up by 23.9 percent in 2017, led by Alpargatas, Crocs, Anta, Puma, Wolverine Worldwide and Skechers. Apparel stock rose by 21.0 percent, thanks especially to VF, which represents almost half of the category's market value, but also to companies like Moncler or Columbia Sportswear. Their gains offset a big drop at Under Armour.
The sports equipment sector, which has been growing more slowly in terms of actual sales, appreciated by only 3.2 percent on the stock market in terms of local currencies. Results varied widely from one company to the other, with Clarus (former Black Diamond), Garmin, Thule, Fox Factory and Johnson Outdoors among the better ones. U.S. companies that are overly dependent on firearms and ammunition like American Outdoor and Vista Outdoor lost ground.
The sports retail sector grew by 14.9 percent overall in 2017, after a gain of 17.4 percent in 2016, reflecting the overall loss in market share by the biggest retail groups that we had observed in a recent issue. Big American sports specialists like Foot Locker, Finish Line, Dick's and Hibbet Sports suffered declines in stock market capitalization last year. American sports retailers are now operating in an environment where an estimated 25 million square feet of physical retail space have been wiped out by a series of major bankruptcies, but the survivors are still facing tough competition from pure e-tailers like Amazon, whose market value jumped by 56.0 percent. They also have to cope with the growing direct-to-consumer efforts of the brands.
In Europe, JD Sports Fashion grew less than Sports Direct International last year. By the end of 2016, JD had gained 53 percent more value and Sports Direct had lost 54 percent.
Inventories are cleaner than before and many vendors and retailers in our sector are wisely investing in innovation, omni-channel, digital marketing, ERP systems and automation, but sports participation is not growing at the same pace as before, except in some emerging markets. In this environment, which has been described as “the new normal,” it's difficult to imagine a possible return to the days when the sporting goods sector was performing better than the overall economy, which is improving anyhow both in the emerging markets and the mature ones.
While the global sporting goods market is likely to continue to grow at the 5-6 percent annual pace of the last few years, the luxury goods sector is recovering from several difficult years, competing for consumer spending. No wonder that Kering has decided to sell a big chunk of its shares in Puma at this stage (see the next article).
We agree with our friend and colleague John Horan at SGI America that there will be more mergers and acquisitions in our industry, like the one between Boardriders and Billabong (see the article in this issue), and that private equity investments are likely to diminish, following some recent monumental failures. More retailers will go under, but mostly the smaller ones and those that are still reluctant to invest in omni-channel capabilities, and this will benefit the survivors.
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