As the media highlighted the historic downturn last week as the worst week ever in the market, there were actually a few positives to be taken from the data compiled on Friday. Crazy swings are often seen as an indicator of a market that is looking for the bottom rather than a market in free fall. The major U.S. indices, while down for the week, actually closed Friday higher than they opened for the day.
The market is clearly in value territory, prompting some to suggest that younger investors actually boost the percentages they are investing in their 401(k) plans. Not exactly a great idea for those over 55 years old, but a sound argument if an investor is in their 20s or 30s. And the sporting goods market may be a best buy.
The market as a whole clearly got hammered last week, not exactly the result the government was looking for when it approved the $700 billion (er, $850 billion) rescue package just one week ago, and estimates are that investors have lost trillions in value over the last few weeks.
So wheres the good news? How about the fact the sporting goods market is still clearly outpacing the overall market since the end of last year. As bad as it was for the industry last week (shown in the chart below), both the Dow and the S&P 500 were down far greater than the sporting goods market, and down nearly twice the rate of the bicycle, outdoor and snow sports market as represented by the BOSS index below.
The industry index tracks 66 sporting goods and outdoor industry stocks each week, while the BOSS index tracks 26 stocks representing that market. The Dept Store index, which is not represented in either main sporting goods market index, tracks 16 club, discount, mass retail, better department store and mid-tier department store stocks.
While Rome was burning last week, five stocks in the sporting goods market made a positive move. Aldila, which makes golf shafts and other components for hockey, ski and other activities, led the gainers, while Dicks Sporting Goods, Deckers, Under Armour and Wolverine Worldwide saw the benefit from strong brands to post gains for the week.
Likewise, five stocks were in positive territory for the year-to-date period since the market closed Dec 28. 2007.
Looking at the entire picture of the industry, many will see buying opportunities here. Companies with strong balance sheets, solid credit lines and product lines that are seen as more recession-proof will benefit. High-end golf, outdoor and upper-end ski brands and shops may suffer as Wall Street now starts to see the pain main street has been experiencing. Main street has now started to look at the budgets the way the U.S. government should, and will only be buying what is needed – not what is wanted.
Holiday will clearly suffer. Prior to the recent downturn, the National Retail Federation was already forecasting that Holiday sales would grow only 2.2%, the weakest since 2002 when holiday sales grew only 1.3% versus the previous year. TNS Retail Forward was forecasting the weakest fourth quarter since 1991, expecting growth of just 1.5% for the fourth quarter.
“This will be the worst Christmas in my 35 years in retail, much worse than current forecasts,” said Matt Powell, senior retail analyst for The SportsOneSource Group. “That said, athletic footwear will continue to outpace the rest of retail. Mom may be making the kids buy their hoodies at Wal-Mart but they still want branded sneakers.”
Sport footwear is expected to outpace the market as a whole through the fourth quarter and into next year, according to Powell, driven by Nike and Jordan, as well as continued strength in the skate footwear category.
The SportsOneSource Group is reiterating its estimate of low-single-digit growth for sport footwear for the year, but expects to see the womens business weaker than expected. That weakness should be offset in part by a stronger kids business.
John Shanley, analyst at Susquehanna Financial Group also sees the upside in athletic footwear, but is more concerned about the hardgoods side of the business.
“We think that sporting goods retailers are going to have a really tough time with selling bigger-ticket items because of the economic downtick,” he said.
“A lot of big-ticket items like golf equipment and exercise equipment-anything thats over $100-are going to be [tough to sell]. The exception is footwear, which we think is going to continue to do very well.”
“We clearly saw challenges when it came to Mom and Dads higher-end purchases this spring and summer,” said James Hartford, chief market analyst for The SportsOneSource Group, which owns SportScanINFO.
Looking at the market is general, SportsOneSource sees the full-line sporting goods guys still performing well in footwear, but big-ticket purchases for Holiday may be challenged. The mall should continue to benefit from strong footwear offerings from Nike and Jordan and new strategic direction for the big players, and the family footwear guys should continue to benefit from skate.
