Retail has not been a great place to be, but JPMorgan sees stability in athletic wear–and that means better times for Nike (NKE) and Under Armour (UA).
REUTERS JPMorgan analysts Matthew Boss and Anne McCormick explain:
Based on our work, the department stores are increasing allocation to activewear space, with our conversations with Macy's (M )management pointing to a doubling of activewear square footage by the end of October (versus last year) as part of its millennial strategy with the key focus being (1) NKE (increased assortment within 650 doors), (2) UA (70 men's & 47 women's doors vs. previously no women's), (3) The North Face (134 doors and expanded assortment vs. 113 doors LY).
Other department stores, such as Nordstrom (JWN) and Kohl’s (KSS) are also dedicating more space to active wear, the analysts say.
As a result, Boss and McCormick upgraded Under Armour to Neutral from Underweight. They write:
Given brand relevance, we believe ongoing product innovation (Charged Cotton technology created a $200M new business in two years), growth in footwear (every 1% of market share in just the running category represents an incremental $60M), growth in non-traditional distribution (department and specialty stores), and investments in the women's business (representing 29% of sales today) should continue to drive sales growth in North America (94% of sales). At only 6% overseas exposure, global expansion is a large opportunity with specialty door expansion an untapped growth vehicle over time. While we believe UA's top-line profile has improved (women's traction), we acknowledge heavy infrastructure investment necessary to build critical mass, particularly as the company expands overseas, is likely to constrain margin and bottom-line upside.
Boss and McCormick’s favorite, however, remains Nike, which reported strong earnings last week, and they raise its price target to $80. They explain why:
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