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Michael Ambrozewicz
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I am a student enrolled in the Business Economics program at Ryerson University. I have been researching and analyzing stocks both technically and analytically for about 2-3 years. I strive to provide critical, up-to-date information for investors that have positions in various companies.
  • Bauer Performance Sports Limited: A Sure Long-Term Hold 0 comments
    Jan 15, 2014 8:32 AM

    Bauer Performance Sports is a publicly traded stock in the Toronto Stock Exchange. It is a leading international hockey supplier and has recently incorporated lacrosse, baseball and uniforms to expand its supply chain. It's a company that is deeply rooted in Canadian psychic. However, it's one of the few companies that I can say with certainty that will remain neutral and forever in the $9.00 to $15.00 range. It has little growth prospect and with a two percent decline in the hockey revenue the future of Bauer looks dim.

    What will eat up its cash flow is higher brand name exposure to the National Hockey League and the prices of raw materials respectively increasing year-by-year. The hockey market is a declining market. This is due to the fact that kids are more sedentary, the video game boom, and higher divorce rates. Hockey is a time consuming sport that makes it not economically feasible even for the upper class to play. There is a reason why Nike sold Bauer at a substantial loss to Kohlberg & Company. There are reasons why CCM is up for sale and no one is willing to purchase it. Nike wanted to focus on growth opportunities with the highest return. Even though Bauer was founded in 1927 and delivered innovative products for over 80 years, it is still rooted in the past. The hockey industry has a hole; it is one of the few industries that has never rejuvenated itself. It's an old boys club. Even all the sales managers that Bauer has, came from the old Cooper Canada days, same old ties without the knowledge of how to grow the business.

    Change in revenue in 2013-2014 was only up 3.8%, less than the 4.1% increase in the previous year. Adjusted net income in 2013-2014 increased 0.9%, substantially less than the adjusted net income increase of 9.6% the previous year. Furthermore, the adjusted EPS of Bauer Performance Sports posted a loss of 3.1% in 2013-2014, higher than the 1.5% loss that it incurred the previous year. This shows its revenue is decelerating even with the acquisitions of Combat, Inaria, and Cascade. What Bauer is dealing with is very dominant manufactures in baseball such as Easton and Rawlings. In lacrosse, the dominant manufacturers that out-compete Bauer are Warrior, Brine, and STX. Any revenue increase in non-core assets will face stiff competition in subsequent quarters.

    The team apparel business is a highly competitive business with very little margin. Competition in this field has intensified. Even Reebok/CCM, a company that dominates the apparel and jersey market, has initiated a two to three year contract with any team that purchases jerseys and apparel. This contract would allow teams to receive additional products such as pants, helmets, and gloves. Another dominant jersey company is Athletic Knit. John Larin, the sales manager of Athletic Knit stated that "We have 200 Canadian workers in our factories and team deliveries mean everything to us. Teams and organizations could bank on it. We are never late."

    Competitors' closeouts are not going to return to normal levels anytime soon. In fact, retailers have indicated that closeouts are coming out earlier than previous years. Furthermore, it takes away open-to-buy and creates an anticipatory reaction from retailers to purchase products at a lower price. For Bauer, competitors' closeouts provide very little visibility for product repeat demand and may not translate into realized sales or future growth. What's alarming is that closeouts reinforce that the core business of hockey is shrinking and deteriorating at a quicker pace than many have considered to be a stable market. According to the Sports and Fitness Industry (SFIA), global hockey participation and registration has grown at a measly 1% annually over the last eight years.

    Hockey does not have a strong base that soccer, football, baseball, basketball, and other sports in minority communities has. There is simply only a few facilities available in urban areas. The biggest problem is that it's not a sport that you just go into your own backyard and play. The cost of hockey equipment limits that. With any initiative to grow the sport of hockey, one must address the negative experience that parents have towards the game. This is the allocation of time commitment and financial obligation. Making the game fun for the kids simply does not cut it.

    The retail climate in Canada has changed, especially in the hockey market. The consolidation of retailers under one umbrella that Canadian Tire controls; Sportcheck, Pro Hockey Life, Sportsphere, National Sports. This represents 80% of the hockey market. Let's say if Canadian Tire decides to purchase Reebok/CCM to grow their business in the United States, it will have a unique growth story to draw Americans into their store. A strong consolidated retailer has more resources and capital to implement their own branded products.

    I feel that Bauer Performance Sports will be a long-term hold with minimal growth. It is a very thinly traded stock in the TSX. It's one of the few companies that are stuck in a time-warp. The headwinds that it faces are very significant to overcome. In fact, the only growth in hockey is taking away market shares from other companies. Most investors loathe the words "market share distribution". It provides limited intrinsic value to the company along with limited growth. Companies that trade market shares are often referred to as a standard piece of theatrical scenery.

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