Sector financial performance:

This company, who primarily designs, develops, markets, and sells athletic footwear, apparel, and equipment mainly through wholesale and as well through retail/ecommerce sites, has been grouped into sports footwear (wholesale/retail) sector in footwear industry.

The demand for sports footwear, especially those big names, seems to be very strong as indicated by the average growth in organic sales of more than 10% in the past several years in this sector. The growth presents consistency between wholesale and retail of those companies and as well among different geographic areas. However, increases vary among brands as indicated by the fact that more recognized brands have had better performance. Online sales increased quickly.

After the second half of 2017, sales in US market seemed to have experienced downward pressure for most of companies in this sector but their global sales were offset by stronger increase in their European and Asian market.

Sales’ shifting to higher price products (probably from international market) is considered as a sign of strong demand, which enables companies in this sector to pass increased products costs to final customers, and as well the driver behind the improved gross margins (48% for 2018) for most of companies in the past several years. The improved SG&A as percentage of sales as a result of leverage of increased sales help companies lift their average operating margin to about 10% from 8% of 2015.

According to our analysis, companies’ enterprise price/EBI ratios fall between 29-47 with an average 38 and an average interest/EBI ratio of 6%.

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Company performance:

It seems unfavourable industry climate in US market has been offset by strong demand from European and Asian market. The demand for its core brand kept strong, especially for its footwear as indicated by double-digit growth in sales of wholesale and retail in the past several years.

The first half of fiscal 2018 compared with same period of 2017       

Net sales increased by 10%.

The fiscal 2017 compared with 2016 

Net sales increased by 13%.

The first nine months of fiscal 2017 compared with the same period of 2016

Net organic sales increased by 16%.

Fiscal 2016 compared with 2015

Net organic sales (currency impacts excluded) increased 18%.

Fiscal 2015compared with 2014

Net organic sales (currency impacts excluded) increased 10%.

Its gross margin increased by about 180 basis points to 49% from 2015 to 2017 due to the combined impacts from increased price and unfavourable changes in foreign currency. At the same time, its SG&A as percentage of sales decreased as a result of quick increase in sales. Its operating margin improved from 5.7% to 8% in 2017.  The gross margin continued to grow in 2018 to about 51% and lift operating margin to about 10.5% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 29. We think that its stock is being relatively under compared with its peers while the slowing down traffic that is happening in US market may moves to Euro market and other markets.