Athlete Beat XIV: LULU On Fire, Nike And Puma Resonating, Peers Are Weaker
May 15, 2020
| The Cowen Insight |
| Our checks show a widening gap in innovation, ASPs and digital brand momentum at Nike, lululemon and Puma. Nike and lululemon digital capabilities and expanding consumer loyalty will prove to be the accelerator into FY21 and FY22 recovery phases. Under Armour checks remain weak. Drivers of Adidas and Vans are weakening. Lowering estimates on VFC below consensus. Raising LULU target to $280. |
| We detail online promotions across our athletic brands and retailers in Figure 1 inside – depth of discounts appear to range from 25% to 60% – Adidas and Under Armour appear most promotional. Top sellers compiled from websites to gauge brand heat and pricing are detailed in Fig. 2-20. We detail premiums in resale/StockX to address Nike, Jordan and Yeezy heat, which appears to be improving. We rank the stocks below based on conviction in our estimates through CY21. 1) LULU – Outperform – Raising Price Target to $280. Our checks show lululemon being the most full-price brand in the sector. Google search trends are also showing the biggest acceleration in history with four-week average search growth of 49% through May 3. We view the Street’s $6 FY21E and $7 FY22E EPS estimates as fairly conservative given store productivity recovery potential combined with digital strength and margin mix shift to digital. Top sellers show depth of the brand across tops and bottoms in both Men’s and Women’s with leading ASPs. (2) NKE – Outperform. Nike Air Max franchises continue to resonate across Men’s and Women’s. Our FY21E and FY22E EPS estimates are slightly below consensus – operating leverage across the sector is proving higher than anticipated based on Q1 results suggesting Street estimates are not conservative but shift to Nike.com and apps produces long-term upside. The earnings recovery at Nike is $3+ in FY22. (3) ADS.GR – Outperform. Product cycle feels levered to Ultraboost, with a new Boost ’21 for fall launch. Most top sellers are in lower priced lifestyle apparel and footwear (Originals). Yeezy momentum continues as indicated by StockX top sellers in Fig. 19. Relatively cheap valuation keeps us optimistic. (4) VFC – Outperform. We are cautious in near-term and lowering our FY21E EPS to $1.83 vs. consensus of $1.76 and the more important FY22E recovery estimate of $2.25 vs. consensus of $2.76. Vans momentum feels challenged – top sellers show no change in mix. (5) PUM.GR – Market Perform. Lifestyle footwear continues to resonate. Cali Collection has a strong showing in Women’s, while Men’s is led by RS-X styling along with classics. (6) UAA – Market Perform. Pricing on Amazon is not in synch with Under Armour.com. Footwear notably absent in Men’s and Women’s top sellers. Low ASPs in Women’s is an issue. We still see risk to consensus estimates. |