Olympic Inspiration Drives Sporting Goods Sales


Every four years, the sporting goods industry gets a gift.

It's called the Summer Olympics, and it arrives in a fusillade of television coverage and capitalism.

About a billion TV viewers worldwide are expected to tune in to see this year's games, which began July 27 and runs though Aug. 12. Along with the competition, they'll also gobble up helpings of ads pitching soft drinks, basketball shoes, burgers and workout apparel.

Many of those ads are designed to drive consumers to sporting goods and athletic apparel chains likeDick's Sporting Goods ( DKS ),Foot Locker ( FL ),Hibbett Sports ( HIBB ) andCabela's ( CAB ).

An added perk: The summer games take place just as young folks are getting ready to head back to school.

"The Olympics should contribute significantly to the back-to-school season, which is the Christmas of the athletic apparel industry," said Bernard Sosnick, an analyst at Gilford Securities.

He figures that this year's games, held in London, will be especially beneficial to U.S. retailers because Americans can watch much of the live action during normal viewing hours.

"This year's games will take place in an accessible time zone as opposed to the (2008) Beijing games or (2000) Sydney games, where day there was night here," Sosnick said.

The Olympic boost further fortifies a sector that is already in pretty tall cotton. Sporting goods, outdoor gear and athletic apparel retail chains have seen a recent rise in sales, earnings and share prices thanks to favorable trends and new products.

At least part of the population has decided it needs to get in better shape. That has helped drive sales of exercise equipment. Better designs of athletic shoes and apparel are also boosting sales.

Wall Street has taken note. Shares of Dick's, Hibbett, Cabela's and Foot Locker have all set new highs in recent weeks.

1. Business

As the name suggests, sporting goods retailers sell sporting goods. But they don't all specialize in the same thing.

Walk into a Dick's store and you'll find a lot of everything: basketball hoops to fishing rods to cardio equipment and athletic apparel -- and a whole section devoted to golf.

Hibbett sells much of the same stuff, though on a smaller scale and at a more affordable price.

Cabela's concentrates on outdoor goods: camping, hiking, fishing gear and boating accessories. Its leading product category, hunting equipment, is 41% of sales.

An industry report from First Research estimates that sports equipment accounts for 65% of sales at sporting good chains. Major equipment categories include exercise, hunting and firearms, golf, fishing and camping.

Clothing contributes 20%. Footwear accounts for 10%.

Foot Locker is more of a specialist, focusing on brand-name running shoes, basketball shoes and workout apparel.

2. Market/Climate

First Research puts U.S. retail sporting goods sales at about $38 billion a year.

Among publicly traded sporting goods retailers, Dick's is far and away the biggest, with $5.2 billion in sales last year. Cabela's had $2.8 billion and Hibbett had $733 million. Foot Locker, despite its narrower focus on athletic apparel, topped the group with $5.6 billion in sales last year.

The entire group could face a surge in competition ifAmazon ( AMZN ) makes good on its plan, announced earlier this year, to offer more sporting goods on its website, including premium athletic shoes and apparel.

That doesn't pose a big threat right now, since neither of the two biggest names in the premium apparel category --Under Armour (UA) andNike (NKE) -- sells products directly to Amazon.

Dick's executives downplayed the threat during the company's first-quarter conference call.

"From a premium standpoint, which is a bit more where we play, (Amazon) doesn't have access to a lot of that product," President and COO Joseph Schmidt said.

In a note, JPMorgan analyst Christopher Horvers said Dick's has a "differentiated assortment of products that creates a bigger moat against Amazon" compared with other retailers that have been hurt by Amazon, such as electronics chainBest Buy (BBY).

But that moat could dry up quickly if Nike and Under Armour change their policies and begin selling directly to Amazon.

Meanwhile, Dick's has upgraded its website, added dot-com kiosks to all of its stores and is expected to further bolster its online operation in coming quarters, analysts say.

3. Outlook

Much of the recent growth at sporting goods stores has been driven by footwear. New and better designs are expected to continue to boost sales of running and basketball shoes.

"Athletic footwear is experiencing the best conditions in 15 years with new products that have been introduced, designs that have caught the fancy of consumers, and the willingness among consumers to buy premium footwear at prices not reached before," Sosnick said.

In a report following Foot Locker's first-quarter earnings, Citigroup analyst Kate McShane noted that although the footwear category is entering its "fourth year of strong growth," it has shown no signs of fatigue.

"Management is viewing the momentum as a trend rather than a cycle," she said. "This thought is based on the fact that demographic trends are changing as more baby boomers look for comfortable shoes and more millennials dress down in the workplace. Further, vendor innovation has been very strong, which continues to drive momentum."

Analysts polled by Thomson Reuters expect that Dick's, Hibbett and Cabela's will all post double-digit earnings gains the next couple of years. Each of these retailers continues to add new stores despite the sluggish economic recovery.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: AMZN , CAB , DKS , FL , HIBB

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