In 2015 it seemed as though nothing could go wrong in the sportswear and athleisure sub-sector in apparel. Then came 2016 and something hit the proverbial fan. Investors in Nike Inc. (NYSE: NKE) and Under Armour Inc. (NYSE: UA) both ran into their own woes. It may not be the case that athleisure is dead or dying, but we could easily be seeing a peak, or at least an area where gains of one company simply come at the expense of a rival.
One issue that wrecked many growth and financial efforts of apparel players in 2016 was the implosion of The Sports Authority, and there are not any major instances that are considered big 2017 risks with that magnitude. Lululemon Athletica Inc. (NASDAQ: LULU) may be somewhat contained versus outside distribution retailers, but the company could face rapid expansion opportunities if it chooses to take on more retail partners.
Nike was the worst performing Dow stock of 2016, and by far. Its simple price drop was almost 19%, and its total return including dividends screened out at −17.7% for a closing price of $50.83 on December’s last trading day. Nike has a lot of room to improve upon its weak dividend, even if it faces endless competition from the likes of such brands as Under Armour, Adidas and Reebok. The real question here is what investors should really expect in 2017.
If analysts somehow get back on track, something they missed in early 2016 and late in 2015, their consensus analyst price target of $62.00 would imply upside of 22% in 2017. That would make for a total return expectation of over 23%, if you include the 1.4% dividend yield.
What is amazing is that Nike beat earnings estimates in its latest quarterly report. Still, concerns over future orders linger, with a very competitive sportswear and athleisure landscape leaving the opportunity for everyone’s margins to compress.
What if analysts are just too pessimistic here, considering how much Nike can is expected to grow earnings ahead? Jefferies recently decided that Nike should be an investor Top Pick for 2017, with a $75 target price issued in late 2016. Also, Nomura has a $60 target on Nike shares, and other analysts were positive late in the month as well.
Nike raised its dividend payout by 10% (to $0.18 from $0.16 per quarter per share) in November, and the company could be a rather large beneficiary of repatriation of cash if potential Trump taxes bringing products in do not hurt the company. The company is also spending billions on promotional and endorsement activities that are larger than many companies on advertising and marketing segments.
Nike shares have a 52-week trading range of $49.01 to $65.44, and the market cap of $85 billion. Its dividend yield is 1.4%.
Under Armour shares ended the year at $25.17 after falling by 37%. The company is much younger than Nike, and it pays no dividend yet. Unfortunately, the Thomson Reuters data on analyst targets was not updated properly at the end of December and start of January. 24/7 Wall St. did go ahead and pull some of the more recent analyst targets for Under Armour, particularly since the company wants whatever market share it can take from Nike and rivals.
One thing that may be a boost for Under Armour is that it landed a massive deal with Major League Baseball. Still, it has not been able to capitalize of late on what would otherwise seem like solid growth with positive earnings that were viewed less positively than expected.