In many instances, sports apparel is about shoes; thanks to Michael Jordan and others, this is a huge industry. The following sports apparel companies are all being propelled by huge endorsements by hot new stars, strong assets, and low debt levels. Today, I will look for profits among five companies involved in the sport shoe industry: Adidas AG (ADDYY.PK), The Finish Line (FINL), Footlocker (FL), Nike (NKE), and Under Armour (UA).
Thanks to the influence of NBA Most Valuable Player Derrick Rose and Defensive Player of the Year Dwight Howard, Adidas AG has become the biggest rival to Nike among the shoe companies. All totaled, eight All-Stars endorse Adidas, and the increased exposure is making its impact on the company's bottom line. Currently trading around $39 per share, Adidas is close to the top of its 52-week range of $28.38 - $40.72. The company does not pay a dividend, and its one-year target of $35.50 represents a 10% decline over its share price at this time. The stock is trading more than 10% above its 200-day average of $34.
Adidas enjoyed a solid 2011, with its stock price rising 23%, its quarterly revenue climbing 8 % and its earnings growing 14%. As strongly as it is trading right now, the rest of its number don't seem to indicate a big drop in share price. Adidas has a reasonable price-to-earnings ratio of 15, a price to book of 2.42 and debt-to-equity ratio of 31.25. Although it doesn't have the stable of stars possessed by Nike, Adidas lacks momentum, but continues to look like a reasonable investment. I am currently rating it as a hold.
It's not a manufacturer, but the fortunes of The Finish Line are tied to LeBron James and Derrick Rose just like Nike and Adidas. With its headquarters in Indianapolis, IN, the chain has around 650 stores in the United States, where it sells shoes, equipment and sports apparel for all ages. The company's stock is trading around $23.75 per share, near the top of its 52-week range ($16.42 - $24.07), and it has a one-year target of $26.50, which represents a potential increase of 10%. The stock price grew nearly 38% in 2011, and its dividend, currently at $0.24 for a 1% yield, was recently raised from $0.20 and 0.8%, respectively.
With a quarterly revenue growth of 8% and a 35% climb in earnings, the company appears to be a profitable option. Although its price-to-book ratio of 2.48 is a bit high, the company is debt-free and has over $216 million in total cash. With its low 14% payout ratio and a 16% return on equity, The Finish Line is a solid buy option in the retail sector.
A direct competitor with The Finish Line, Footlocker is a large retail outlet for athletic footwear and apparel. The company has more than 3,400 stores that it operates in mall-based locations in the United States, Puerto Rico, the U.S. Virgin Islands, Guam, Canada, Europe, Australia, and New Zealand. The stock, currently trading at just over $28 per share, has a 52-week range of $16.66 to $28.58 and a flat one-year target. The company is a solid dividend payer, with an annual return of $0.72 for a 2.6% yield.
Seen as a top yield producer among retail stocks, Footlocker had a very strong 2011. The stock increased 48% over the 12-month period, and its quarterly revenue (up 8.9%) and its earnings (increased 26.9%) saw nice moves. The $4.26 billion company has a low total debt of $136 million, and its debt-to-equity ratio is an excellent 6.5. While its one-year target suggests a flat year for the share price, the stock has been bullish, trading almost 20% above its 200-day moving average. I believe the price will continue to rise, and I am rating Footlocker as a buy.
No discussion of sports apparel would be complete without including Nike. The athletic footwear division, shaped largely through its association with basketball legend Michael Jordan, dominates the sector. Headlined by LeBron James and Kobe Bryant, the company has nearly half of the NBA's players as endorsers, with 35 All-Stars, 20 NBA champions and 18 Olympic medalists in its ranks. Trading around $106.50 per share, the stock has a 52-week range of $69.43 - $107.63 and a one-year target near $108. The company pays a $1.44 dividend, giving it a 1.3% yield.
While its growth has slowed, Nike is still a juggernaut, with a 22% increase in share price in the past year, a 19% rise in quarterly revenue and a 3% climb in earnings. The $49 billion company carries a minuscule $471 million in total debt (it has a debt-to-equity ratio of 4.79), but it does have $733 million of goodwill on its books. Because of the company's impressive marketing savvy, it capitalizes on trends like New York Knick sensation Jeremy Lin's rise to prominence. (Nike is his only endorsement.) Moves like this are expected to help the company maintain its dominance in the sector; they also make Nike a solid buy on Wall Street.
With little fanfare and even less of the star-power that drives Nike and Adidas, Under Armour put together a strong 2011 that many expect it to build on during 2012. Long known for its athletic apparel, Under Armour still doesn't depend heavily on its shoes to drive profits; in fact, only 12% of its revenue is from shoes. While that number has been growing, Under Armour has two NBA endorsers, and only Brandon Jennings is a widely known player. Even still, the company's stock is trading around $85 per share, near the top of its 52-week range of $52.62 - $87.40, and more than $10 above its 200-day moving average of $74.44. The company does not pay a dividend, but with a 28% climb in share price over the past year, many investors are able to overlook that.
Share price wasn't the only thing to rise at Under Armour in 2011. The company had a strong quarterly revenue growth of 34%, while its earnings soared an impressive 42%. The company accomplished this without piling up a huge debt (only $77.7 million), as evidenced by its debt-to-equity ratio of 12.21. Although there is some concern about investors holding over 13% of the company's float in short positions, the numbers seem to stack up in favor of continued positive results. I am impressed by what Under Armour has accomplished, and I rate the company a buy at the current time.
In a market dominated by Nike, there is still plenty of money to be made by the major players. While I am a little concerned with Adidas AG and have it as a hold, I like what The Finish Line Inc, Footlocker Inc, Nike Inc and Under Armour Inc have all managed to do over the past year. I see each of them as buys in what should be a better consumer market in 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.