According to SGI Europe’s quarterly study of 38 select sporting goods industry stocks, the decline was less than the 16.25 percent average decline in the first quarter of 2022, when 34 out of 36 stocks posted a stock price drop from the end of the fourth quarter. Five of the six gainers during the period were in Asia, led by Xtep International, with Frasers Group from Great Britain also posting a higher stock price quarter over quarter. All U.S. sporting goods stocks experienced stock price declines, with two fitness entrants, Peloton Interactive and Nautilus, suffering triple-digit percentage dips in their respective stock prices.
SGIE Index corresponds with established market indices
Sporting goods industry stock results during the second quarter were in step with most international indices during the period. The MSCI World Index, which tracks large and mid-cap public companies across 23 developed markets, recorded its worst first-half percentage decline ever, and the S&P 500 fell 16.45 percent to record its biggest first-half decline in 52 years. The MSCI has declined only three times annually since a more than 40.7 percent drop in 2008. The DAX was down 11.24 percent in the second quarter, and the FTSE 100 was off 4.61 percent.
Inevitable price hikes may continue to slow consumer demand
While most around the world are contending with escalating prices, higher interest rates and the effects of inflation, bankers from the European Central Bank, U.S. Federal Reserve and Bank of England met in Portugal last week and jointly vowed to take actions to control global inflation going forward. In May, U.S. consumer spending rose less than expected, and Germany reported its first trade deficit in 31 years, two developments that could signal difficult times during the second half of 2022. During the first quarter, many brands announced plans for select price increases to help offset higher sourcing and freight costs and keep margins in line. Further slowing consumer demand in the crucial third and fourth quarters could derail those higher-price objectives.
China most likely to recover in 2023
On a positive note, analysts indicate a recovery in China’s economic growth in 2023 and steadiness in its stocks in the third quarter if U.S. inflation moderates or the U.S. Federal Reserve pulls back on its strategy to steadily increase interest rates to slow market inflation. Last week, JP Morgan, citing weaker data, lowered its annualized gross domestic product forecast for the U.S. to 1 percent in the second quarter from 2.5 percent and forecasted a similar 1 percent gain in the third quarter before an increase to 1.5 percent market GDP in the final period of 2022.
Market leaders weaken forecasts, expect growth in APAC
Athletic footwear market leaders Nike and Adidas each suffered double-digit stock price declines in the first half. As of the last week of June, Nike shares were down 34 percent from the start of 2022. But, as the company remains committed to further advancing its digital strategies globally, Nike believes it will have a speed and supply chain advantage going forward with the implementation of enterprise planning software (ERP) in Greater China this month and in North America in FY24. Also, Nike continues to believe in its long-term prospects in China after it weathers a promotional period in the immediate months ahead.
As for Adidas, the company has yet to temper its early May forecast that its second half revenues will grow by more than 20 percent on accelerating growth in the Asia-Pacific region, continued momentum in Western markets and “unconstrained” supply. The company, implementing broad mid to high-single-digit price increases in the second half, has forecast currency-neutral 2022 sales to come in at the low-end of guidance of 11 to 13 percent growth.
Some more specifics about the performance of other key industry companies in the second quarter:
- Despite its current bumpy road, Peloton intends to generate positive free cash flow by FY2023. The connected fitness company is also forecasting $165 million in operating expenses in the second half and $450 million in FY23. Going forward, growth outside its home U.S. market could be a bright spot as Peloton crafts its strategies for these regions. In its most recent quarter, international sales were 92 percent higher versus a 53 percent increase in the U.S.
- Asics is forecasting 3.9 percent revenue growth and a 4.8 percent increase in annual operating income this fiscal year after generating total revenues of more than ¥400 billion in 2021.
- Frasers Group’s new CEO Michael Murray recently made a senior executive appointment as he aims to accelerate the firm’s growth. Among the nominations was Beckie Stanton to chief marketing officer for the group. She had served in a similar position for Sports Direct.
- Xtep International, in March, said its five-year revenue target would be bolstered by revenue expansion from four Western brands (K-Swiss, Palladium, Merrell and Saucony) and its own label. The company intends to grow the Xtep brand to 20 billion yuan renminbi and the four Western labels (Merrell and Saucony are joint ventures with Wolverine Worldwide) to RMB 4 billion.
