Sneaker Stocks Slip and Slide
Investors stomped on shares of athletic-shoe makers again Thursday after Reebok International Ltd. provided fresh evidence that the $12-billion U.S. sneaker market remains caught in a major slowdown.
Stocks of Reebok, industry leader Nike Inc., Converse Inc. and other leading players in the industry have been sliding all year amid growing signs that sales were going flat. They plunged again Thursday--several to their 52-week lows--after Reebok forecast that its 1997 earnings will come up short of Wall Street’s expectations.
But the slide could benefit consumers: Analysts predicted that the shoe makers and retailers will extend recent price cuts to move the unsold goods.
“The next three months would be a great time to be buying sneakers,” said Jennifer Black Groves, whose Black & Co. in Portland, Ore., focuses on apparel stocks. “There’s going to be a lot of discounting going on.”
Reebok, based in Stoughton, Mass., cited the “industrywide slowdown in retail sales of branded athletic footwear and apparel” for its bleaker outlook, and said it doesn’t expect the situation to improve any time soon.
The “weaker market conditions” are expected to continue “through the first half of 1998,” Chairman Paul Fireman said in a statement.
What’s the problem? For starters, shoe retailers bought heavily from the manufacturers early this year amid expectations of much stronger sales. But with sales lagging, the retailers’ inventories are bloated and they’re not buying as many sneakers.
“There is a glut of footwear in the marketplace,” Groves said.
She also said newly introduced shoes tied to professional athletes, including basketball stars Penny Hardaway and Allen Iverson, “were all very mediocre launches” in terms of sales.
Demographic trends are partly to blame for the slowdown in sales, observers said.
“The growing part of the population is baby boomers,” and that means “the buying power is shifting to an older group that doesn’t buy as many athletic shoes” as do teenagers, said Thomas Doyle, vice president for research at the National Sporting Goods Assn., a trade group in Mount Prospect, Ill.
Many people have shifted from wearing basketball sneakers and other athletic shoes to what the industry dubs “brown shoes”--work boots, hiking shoes and casual footwear that’s either brown or black.
Doyle said a consumer shift away from jeans to other types of pants has also played a role.
“There is a very high correlation between wearing jeans and wearing sneakers, and sneakers don’t go well with twill pants,” Doyle said. “It’s my own barometer, but when Levi Strauss is closing plants, it’s not good for athletic footwear.”
Doyle was referring to the announcement last month by denim king Levi Strauss & Co. that it planned to close 11 plants and lay off 6,400 workers because of slowing sales.
The shoe price cuts, while good for buyers, might not be good for the industry, either, said analyst Shelly Hale Young of Hambrecht & Quist in San Francisco. “It might just perpetuate the problem, because if people buy now because of lower prices, next spring they might not buy, because they already have their new athletic shoes.”
Reebok said it expects to earn between $2.25 and $2.35 a share for 1997, excluding one-time gains or charges. That’s up from $2 a share last year but below the $2.50 a share that most analysts had expected for 1997.
Reebok also said it will take a pretax charge of up to $20 million in the fourth quarter, to eliminate or restructure marketing contracts it has with certain athletes and teams. Spokeswoman Kate Burnham declined to identify the contracts involved, but said the company wants to “concentrate on our major endorsers.”
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DOWN AT THE HEEL
Stocks of athletic-shoe makers and retailers tumbled again after Reebok International Ltd. forecast disappointing 1997 earnings. The stocks have suffered this year amid growing signs of an industrywide sales slowdown.
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Stock Thursday close Change % Change from 2/28 Reebok Int’l $29.00 -$3.81 -38% Nike 45.13 -1.38 -37 Fila Holding* 22.94 -1.25 -62 Footstar 29.44 -1.13 +17 Woolworth** 20.94 -0.88 +1 Converse 6.06 -0.25 -75
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* American depositary receipts.
**Parent of Foot Locker shoe stores.
Source: Bloomberg News
