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 year of fiscal 2018 compared with same period of 2017           

Net organic sales increased by 18% (15% for 2Q) primarily attributable to increase in footwear products and as well apparels.

Owned retail store sale (22% of total revenue, including e-commerce): 24%.

The fiscal 2017 compared with 2016 

Net organic sales increased by 16% primarily attributable to increase in footwear products.

Owned retail store sale (22% of total revenue): 23%.

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

Net organic sales increased by 16% primarily attributable to increase in footwear products and as well apparels.

Retail sales (22% of total revenue): 22%

Fiscal 2016 compared with 2015

Net organic sales (currency impacts excluded) increased 10% primarily attributable to its core footwear products (both in footwear and apparels)

Retail sales (21% of total revenue): 12.5%

Fiscal 2015 compared with 2014

Net organic sales (currency impacts excluded) increased 6.5% primarily attributable to its core footwear products and as well apparels.

Retail sales (21% of total revenue): 9.3%

Its gross margin has no changes at around 46-47% due to the combined impacts from product mix and changes in foreign currency between 2015 and 2017. 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 4.4% to 5.7% in 2017. As sales shifting to higher margin products since 2017, its gross margin was improved to 48% and thus caused operating margin up to about 7% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of 35. We think that its stock is being relatively fairly valued considering the continuously strong trend in this sector and its ability to develop international market.