Canaccord Genuity Morning Coffee on UA, NKE & LULU: Lookin' Good
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Price: $5.24 +1.75%
Rating Summary:
14 Buy, 24 Hold, 5 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
14 Buy, 24 Hold, 5 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Canaccord Genuity Morning Coffee on Under Armour (NYSE: UA), Nike (NYSE: NKE) and lululemon athletica (Nasdaq: LULU): Lookin’ good.
Canaccord Genuity Consumer Products Analyst Camilo Lyon hosted an event earlier this week, featuring a guest speaker from the athletic apparel manufacturing world. Highlights from the event include: 1) Demand for athletic apparel remains robust in 2012, we believe. Most key players in the space (e.g., Under Armour, Lululemon, Nike) are facing capacity constraints as a result of surging demand and rising competition from other retailers attempting to enter the market and gain share e.g., Gap (NYSE: GPS) & Costco (Nasdaq: COST). This is causing factories to run at full capacity to meet this current demand with little relief in sight. To combat these issues, the suppliers are expanding production in countries such as Lesotho and Vietnam; 2) Costs, both labor and raw materials, continue to rise as a result of strong demand trends. Lyon estimates costs on performance apparel are rising as much as 20% on some products. Some companies (e.g., Under Armour and Nike) have been or are taking price increases to help mitigate these headwinds. If current demand trends continue at the current rate, he would not be surprised to see incremental price increases in future years; and 3) Given the rising cost environment, Lyon believes brand strength, along with consumer acceptance of that brand, is becoming increasingly important in order to mitigate these gross margin pressures by raising prices. He believes top-tier brands such as Under Armour and Nike should be able to pass price through with little resistance. This also should benefit the retailers, which flow through price increases directly to the consumer but do not take on similar inventory risk as the vendors.
Canaccord Genuity Consumer Products Analyst Camilo Lyon hosted an event earlier this week, featuring a guest speaker from the athletic apparel manufacturing world. Highlights from the event include: 1) Demand for athletic apparel remains robust in 2012, we believe. Most key players in the space (e.g., Under Armour, Lululemon, Nike) are facing capacity constraints as a result of surging demand and rising competition from other retailers attempting to enter the market and gain share e.g., Gap (NYSE: GPS) & Costco (Nasdaq: COST). This is causing factories to run at full capacity to meet this current demand with little relief in sight. To combat these issues, the suppliers are expanding production in countries such as Lesotho and Vietnam; 2) Costs, both labor and raw materials, continue to rise as a result of strong demand trends. Lyon estimates costs on performance apparel are rising as much as 20% on some products. Some companies (e.g., Under Armour and Nike) have been or are taking price increases to help mitigate these headwinds. If current demand trends continue at the current rate, he would not be surprised to see incremental price increases in future years; and 3) Given the rising cost environment, Lyon believes brand strength, along with consumer acceptance of that brand, is becoming increasingly important in order to mitigate these gross margin pressures by raising prices. He believes top-tier brands such as Under Armour and Nike should be able to pass price through with little resistance. This also should benefit the retailers, which flow through price increases directly to the consumer but do not take on similar inventory risk as the vendors.
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