Makers of Athletic Apparel
Rebound on NBA Settlement
By SUSAN PULLIAM
Staff Reporter of THE WALL STREET JOURNAL
The end of the National Basketball Association lockout produced a quick score for investors in athletic-apparel makers.
Shares of sneaker retailers rebounded after news hit that the lockout is expected to be resolved. In New York Stock Exchange composite trading, Nike jumped 7.2%, or 2 15/16, to 43 5/8, while Venator Group, formerly Woolworth, which now owns Foot Locker, added 5/8, or 9.3%, to 7 5/16. Retailer Just For Feet shot up 8.4% on the Nasdaq Stock Market to close at 18 1/2, a gain of 1 7/16. And shares of the only publicly traded NBA team, the Boston Celtics, soared, gaining 39%, or 4 1/8, to 14 5/8 on the Big Board.
While most boats were rising on Wednesday's stock market, gains in athletic-related issues made sense. True, like an umbrella merchant during a rainstorm, athletic-footwear makers and retailers may get only a short-term boost, especially since the season is truncated. But these stocks are so down and out that analysts and investors say a revival may actually be under way. What's more, the manufacturers have finally got their inventory cleared out, investors say, and hopes are even high that spring athletic-footwear designs could be a hit with the teeny-bopper crowd.
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"I think it's a big deal," says Faye Landes, an analyst with Salomon Smith Barney who was one of the first on Wall Street to predict Nike's slump in 1997 and in December began recommending Nike again to clients. U.S. basketball-related sales represent 15% of Nike's overall sales, she says. "Basketball is really important" to Nike, she says, and an exciting NBA playoff could be just what the company needs for a sales pickup.
The U.S. market for basketball shoes and athletic wear totaled roughly $3 billion in 1997. But it's been a long while since shares of athletic-footwear retailers have seen any good news. They've underperformed the overall market for the last two years as teens' preferences shifted to casual "brown shoes" over expensive white sneakers, including basketball shoes.
Venator, for instance, took a long slide last year, from a high of 27 1/4 in March to a low of 5 3/16 in late December. Nike tried to rally in November, after tumbling from 52 11/16 to a low of 31 around the time the lockout began in September. Only some of its fall can be blamed on the absence of superstars led by Michael Jordan, who has his own signature Nike line. During the same period, a slowdown in Asia also hurt U.S. athletic shoewear and apparel makers.
The NBA lockout added insult to injury this fall, eliminating the televised games that Nike officials refer to as their "runway" for showing off basketball products. Athletic retailers complained that sales of basketball apparel and shoes slowed in the fall after the lockout began.
But with the lockout ending, basketball shoes and apparel could get a boost. "The weekend NBA games are where Nike shows its new spring products," says Josephine Esquivel, an analyst with Morgan Stanley Dean Witter. "During the games, people see the players wearing their products and it's like free advertising."
Investors say shares of athletic-footwear retailers have been beaten down so far they finally look like a layup. "These stocks are dirt cheap," says Daniel Perla, who runs a hedge fund that concentrates on retail stocks. Venator, he says, is "finally down to where you want to buy it." Finish Line, a shoe retailer, also has fallen to a level where it is tempting, he says. "These are definitely the cheapest retail stocks you can buy right now," he says.
Venator has other things going for it, at least as investors see it. Holders of the stock include Al Kinsley's Greenway Partners, which recently increased its stake to 11.9%. "We think it's undervalued," he says, adding "obviously the business has been in the doldrums but we hope that will change in the spring, particularly as we head toward the summer Olympics of 2000."
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