Sports Apparel Continues to Outperform Other Retailers

 | Aug 22, 2016 | 12:45 PM EDT
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Sports apparel retailers are asking, "What retail slump?" following the release of Foot Locker's (FL) latest quarterly results on Friday. Earlier last week, Dick's Sporting Goods (DKS) also reported better-than-expected top- and bottom-line results.

Analysts at Jefferies raised their price target on Foot Locker to $80 from $73 while maintaining their Buy rating on the company. "With the sequential reacceleration in basketball shoes, stellar success of brands like Adidas, and long-term growth initiatives on track, we continue to view FL favorably," analyst Randal J. Konik wrote in Friday's note.  

The company's strong quarter can be traced back to a resurgence in basketball shoe sales that had been cresting in previous months. 

"The facts are that most of the basketball shoes that we sell never see a basketball court. Most of the running shoes that we sell never see the roads or the trail or the track," Foot Locker CEO Dick Johnson said during the company's conference call. "They just look really good, and they're part of the sneaker culture that we really support."

The strength of that culture had been in question in recent quarters as Foot Locker blamed slow basketball shoe sales for its weak quarter in the previous period. The company said basketball shoe sales declined in the mid-single-digit range, with two of Nike's  (NKE) top-selling signature shoes from LeBron James and Kevin Durant showing weak sales during the period.

"Our core consumer changes their preferences sometimes multiple times during a day," Johnson said at the time. 

But during a quarter in which the NBA playoffs were in full swing, concluding with the NBA Finals in June, basketball and running shoe sales caused Johnson to change his tone.

Citigroup analyst Kate McShane sees Foot Locker as a strong back-to-school retail play as the athletic apparel sector of retail remains "intact." While Foot Locker is a strong play, McShane also identified several vendors who she believes could also be strong plays as kids and teenagers head back to school over the coming weeks. Growth Seeker holding Under Armour (UA) , Nike and Skechers  (SKS) were also mentioned in the note. 

Meanwhile, analysts at Canacord Genuity increased their price target to $79 from $75 while maintaining their Buy rating. 

"We are particularly encouraged by the 4.7% comp growth, indicating a sharp reacceleration on particularly a two-year basis, despite the negative impact from the closing of the flagship store in NY," analyst Camilo Lyon wrote. "Additionally, basketball made a strong rebound following a MSD decline in Q1, supporting our view that aside from softness in NKE signature, the category remains robust (led by Jordan Retro, Curry, Kryie, Superstars)." 

Foot Locker's beat comes after a similar quarter from fellow sports apparel retailer Dick's Sporting Goods following the closure of rival Sports Authority. 

"Sellers had swarmed all over Foot Locker because of a subpar previous quarter that may have been brought on by the liquidation of Sports Authority. But one thing's certain," Real Money's Jim Cramer wrote in a note today. "Foot Locker not only reported a good quarter, with excellent sales for Nike, which spiked after the report, and Under Armour, which should have, but the quarter grew stronger as the months went on."

Analysts at Susquehanna were similarly bullish on Foot Locker following its latest earnings results. The firm raised its price target to $80 from $73 on Monday. Analysts at the firm expect the company's operations to continue to improve. 

During the company's earnings call, Dick Johnson made it clear he does not believe malls are dead. This is a sentiment that Cramer echoed in an article today.

"More important, though, this was the quarter that changed the perception of the moribund state of bricks-and-mortar retail. We need, right now, at this minute, to bury the death-of-the-mall narrative, because there were so many mall-based stores that put up good numbers with good commentary that it's just no longer a true statement," Cramer said. 

The retail results over the next couple of weeks will help determine whether the tales of the shopping mall's decline have been exaggerated. But for now, mall retailers and vendors peddling sports apparel seem to be immune from the wider sector's downturn. 

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