The past few months have been tough for sporting goods investors. Western brands, especially
felt the heat of boycotts in China, while higher shipping costs were a concern for margins. Yet these headwinds are likely to be temporary, HSBC argues.
Analyst Erwan Rambourg reiterated a buy note on Nike (ticker: NKE) on Wednesday, while raising his price target to $ 205 against $ 161. The move comes just weeks after the company reported optimistic earnings, despite lingering tensions in China. Rambourg also reiterated a purchase note on
(PUMA.Germany), and upgraded
(ADDYY) to buy pending.
He doesn’t expect fears about China, a key market for the three companies, to end overnight. Yet at the same time, if there is no “easy way out of this crisis, we also believe that Nike, Adidas and Puma still have years of very profitable growth in front of this key market.”
The weather should calm the spirits, writes Rambourg, and the high cost of freight will not last forever either. Meanwhile, inventories have been low across the industry, meaning less need for discounting to squeeze margins. This comes at a time when these brands are making more direct sales to consumers online, which allows them to cultivate relationships with consumers to build loyalty and collect valuable data.
Nike will of course remain the main driver of sporting goods, both in China and in other markets around the world. But while it “does not imply that Adidas and Puma are comparable to the industry leader, there are many lessons from Nike’s roadmap that may be useful for their smaller European counterparts,” notes Rambourg. .
He also believes sporting goods are one of the most attractive categories in retailing right now, more than luxury, given their more accessible prices and the likelihood of repeat purchases.
Write to Teresa Rivas at [email protected]