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May 14, 2020

Nike sales trends outstrip rivals 'by far,' Credit Suisse says

Clothing is displayed for sale at the Nike by Melrose live concept store in West Hollywood, California, U.S., on Monday, July 30, 2018.

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Nike Inc. has been among the chief beneficiaries of a “significant acceleration in athletic apparel/footwear trends” over the past couple of weeks as stores in several states began reopening after the COVID-19 pandemic closed all but essential businesses across the country, according to Credit Suisse Securities analyst Michael Binetti.

“Athletic trends looked very bad” at the start of the crisis, Binetti told Bloomberg in a phone interview. But recent check-ins with his retail industry contacts have pointed to overall category trends up “significantly” year-over-year, led by Nike, which is showing brand trends up “well into” the double-digit range over the last couple weeks in several U.S. markets.

The Nike brand is “resonating very well with consumers globally,” despite the backdrop of sales pressure from the pandemic. Adidas and Vans have also shown a positive turn in trends. Under Armour Inc. trends were less positive than other brands, which isn’t surprising given its recent quarterly results, and management’s view that second-quarter revenue may plunge as much as 60 per cent.

“It is encouraging to hear about the trends in athletic-based categories. But you want to be careful because things are changing very quickly,” he said. There will still be inconsistency from various retailers, particularly by category and geography.

For instance, Binetti noted that as the markets in the South have recently begun reopening, trends have been “extremely strong.” Social media shows pictures of very crowded stores. “Things have reversed,” he said. But in markets more hard-hit by COVID-19, such as Chicago, New York, Boston and San Francisco, Binetti continues to hear a lot of conservatism about shopping.

He is positive on the athletic-wear category, particularly Nike and Lululemon Athletica Inc., both of which he rates outperform.

Off-Pricers in Limelight

Binetti is also keeping a close eye on inventory levels, noting that full-price retailers are sitting on a glut of spring/summer merchandise that never made it to the sales floor. Some of this product will find its way to the off-price channel, and some will be on promotion in full-price channels. Both scenarios present headwinds for retailers.

Investors will need to stay “very selective,” according to Binetti. With all the left over merchandise, “the off-price retailers are going to have very good inventory from very good brands, that will hit their stores next spring.” His favourite discount names are Ross Stores Inc., TJX Cos. Inc. and Burlington Stores Inc. — all of which are rated outperform.