3 Olympic Winners to Buy Before the Games
The 2012 Olympic Games in London have begun, even though the events aren’t scheduled to start until July.
That’s because athletic-shoe and apparel companies such as Adidas and Nike are already competing over who can wear their companies’ logos on their uniforms standing on the medals podium.
That sort of brand recognition earns gold in the form of higher sales for years to come.
This year is especially important, as the Olympics coincide with the European soccer championships, another infrequent, but giant, opportunity to wave their brands in front of a worldwide audience.
Adidas is making the biggest bet on this summer’s events, as it’s the official sponsor of both the Olympic Games and the UEFA European soccer tournament that begins in June in Poland and the Ukraine.
Adidas’ CEO, Herbert Hainer, said in conjunction with the German firm’s fourth-quarter earnings report Tuesday that “there is always great buzz and excitement around major sports events and they don’t come bigger than the London 2012 Olympic Games and the UEFA Euro 2012.”
So, as the Olympic sponsor and official provider of many national teams, Adidas claims the right to make the athletes wear only its gear on the medals podium, although they can race in whatever shoes they want.
That has prompted one longtime Nike-sponsored athlete and potential medalist to threaten to go barefoot instead. That may sound silly, but there’s a lot at stake.
The Olympic viewing audience alone is expected to be in the billions, giving the firms a high profile in the fastest growing markets, such as Asia.
Also, it’s big in the U.S. because the 2008 Beijing Olympics was the most watched television event ever in the U.S. NPD Group, a marketing-research firm, said in its most recent Global Sports Estimate report that sales of sports equipment, including apparel and athletic footwear, was $315 billion in 2010, a 4 percent gain over 2009.
“Companies may not gain a lot by being there, but stand to lose even more if they are not,” said Marshal Cohen, NPD's chief industry analyst, in an email.
“The Olympics can bring a boost of 10 percent growth essentially for ‘catching lightning in a bottle,’ ” he said, which means, “a prominent placement of a logo in an iconic photo seen around the world.” So expect to see Adidas’ three-stripes and Nike’s “swoosh” logos over and over again, both in TV and print advertising, and on the apparel and shoes of the competitors this summer.
Adidas is even providing shoes and clothing to the Olympic support staff, and per its agreement, they can’t wear anything else.
The company’s CEO said the Olympic deals alone should boost sales by about $157 million and help it overtake Nike as the leading sports apparel brand in the U.K. by 2015.
But Nike said in December that its future orders are up 13 percent, going into the Olympic year, and it plans to launch several new attention-getting products at the Olympics, including aerodynamic “Turbo speed suits” for sprinters, and the Superfly R4 sprinting shoe.
It also has many top athletes under contract who are sure to be medal winners.
Much smaller Puma, majority-owned by the French multinational luxury goods maker PPR, will also get noticed as the sponsor of the Jamaican Olympic team, which is chock full of potential gold-medal sprinters.
Puma has been a longtime sponsor of the world's fastest man, the flamboyant Usain “Lightning” Bolt, who was the star of the 2008 Beijing Olympics by winning the 100-meter and 200-meter races in world-record times.
Puma’s CEO said in a recent company report that the relationship with Jamaica and Bolt helped boost his firm's shoe sales by 10 percent in 2011, and footwear makes up more than half of the company's revenue.
And there will be a host of other equipment suppliers, especially of shoes, nipping at the heels of Nike and Adidas. They include Japan’s Asics, privately held New Balance and Saucony, both of the U.S., and South Korea’s Fila, to name a few.
“Just having a presence at the Olympics can make a brand go from a relative unknown to becoming world-renowned,” NPD’s Cohen said, citing the success of Roots, a Canadian athletic apparel maker that got a big brand-building boost from sponsoring several Canadian Winter Olympic teams.
Under Armour, a relative upstart but a great innovator in the footwear and apparel industry, sponsored Olympic athletes at the last winter Olympics, but isn’t expected to play a big sponsorship role in this summer's games.
Nonetheless, it will likely benefit from the excitement over those events and its new products.
Indicative of that, one of the nation's largest sport shoe retailers, Foot Locker reported last week that its fiscal fourth-quarter earnings rose 42 percent as innovative new products from Nike, Adidas, and Under Armour helped boost results for the period ended Jan. 28.
Here are investment summaries of the three biggest sports footwear and apparel makers:
Company profile: Nike, with a market value of almost $50 billion, is the world’s largest designer and wholesaler of athletic footwear and apparel.
In addition to the boost it should get from the Olympics and the European soccer championship, Nike just signed a licensing agreement to provide uniforms and gear to the National Football League, beginning in April.
In its most recent fiscal quarter, Nike reported that revenue rose 18 percent to $5.7 billion, while earnings rose 6 percent to $1 per share.
Dividend Yield: 1.34 percent
Investor takeaway: Its shares are up 12 percent this year and have a three-year, average annual return of almost 41 percent. Over 10 years, the average annual return is almost 15 percent.
Analysts give its shares 11 “buy” ratings, two “buy/holds,” six “holds,” and two “weak holds,” according to a survey of analysts by Standard & Poor’s. S&P has it “buy”-rated with a $108 price target, which is about where it is now.
Analysts expect Nike to earn $4.93 per share in 2012, growing by 18 percent to $5.82 per share next year. Bank of America Merrill Lynch analysts, which have Nike on “buy,” raised their price target on its shares to $120 from $110 on Feb. 27, given its recent strong sales of premium shoes. That price is an 11.5 percent premium.
Sterne Agee also recently raised its price target on Nike, to $125 from $110, because of the company's new products that include technologies intersecting sports and data.
The company has bought back $3.6 billion in a four-year, $5 billion share-repurchase program.
Company profile: Adidas, with a market value of $12 billion, is the world’s second-largest maker and seller of athletic footwear and apparel. Its Reebok acquisition in 2006 widened its U.S. market exposure, and it owns several other brands. Adidas sales and earnings grew to record levels in 2011, helped by big demand from China and Eastern Europe.
Dividend Yield: 1.6 percent
Investor takeaway: Its shares are up 11.4 percent this year and have a three-year average annual return of 36 percent. S&P has its shares rated “buy,” although the stock is now trading close to its 12-month price target. No major U.S. analysts follow the stock.
The company said Wednesday that it expects sales growth of 5 percent to 9 percent this year, down from 13 percent in 2011, which disappointed analysts, but it should be noted that the company is known for being conservative — it upgraded its forecasts four times in 2011.
On Tuesday, Adidas reported an 18 percent rise in 2011 profit to $881 million, a record.
Deutsche Bank reiterated its “buy” rating on Adidas shares Feb. 2, and said it expects 19 percent earnings growth in fiscal 2013 to at least $15 billion. Deutsche Bank also increased its target price by 19 percent.
3. Under Armour
Company profile: Under Armour, with a market value of $4.6 billion, is a relative newcomer to the industry. It makes and sells athletic apparel, footwear, and built its reputation on its synthetic microfiber clothing, designed to wick perspiration away from the skin and help regulate body temperature.
Dividend Yield: N/A
Investor takeaway: Its shares are up 24 percent this year and have a three-year average annual return of 93 percent.
According to S&P analysts, “Under Armour is poised to achieve above-industry growth in 2012,” supported by continued investment in its direct consumer business. “We see revenues increasing 20% in 2012 to $1.77 billion.”
In the fourth quarter of 2011, it reported revenue growth of 34 percent and earnings growth of 40 percent per share. For fiscal 2013, analysts estimate that UA’s earnings will grow by 28 percent to $2.98 per share.
It recently reiterated its 2012 outlook for operating income growth at the high end of its 20 percent to 25 percent long-term growth target.
Analysts give its shares nine “buy” ratings, four “buy/holds,” 12 “holds,” one “weak hold,” and one “sell,” according to a survey by S&P.
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