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The Opportunity Ahead in Sports Products Stocks (UA, SBEV, LULU)

One area of the economy hit by the pandemic health crisis that may drive future gains for investors is in the ecosystem of products and services surrounding live sports events – particularly the branded products built to find the market through sponsorships or marketing delivered in that ecosystem.

You think about the fact that the pandemic has shut down some teams, games, leagues, major events, or whole seasons, and it’s clear that it has implications for businesses that get paid by that industry. But it’s important to also consider what else that implies – ie, the concession foods, media companies, and products that have branded identities built on the action in sporting events, including the personalities and media coverage surrounding it.

While live sports have returned, they haven’t returned in full, and not with full confidence. Yet, we can be quite confident that some version of normal live sporting experiences isn’t too far off in the future at this point, suggesting that stocks levered to that ecosystem may represent big opportunities going forward.

With that in mind, we take a look here at some of the most interesting names in the space, including: Under Armour Inc (NYSE:UA), Splash Beverage Group Inc (OTCMKTS:SBEV), and Lululemon Athletica Inc (NASDAQ:LULU).

 

Under Armour Inc (NYSE:UA) has been one of the most aggressive big brands marketing through coverage of sports, with numerous major endorsement deals already in the works. The company develops, markets, and distributes branded performance apparel, footwear, and accessories for men, women, and youth primarily in North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America.

The company offers its apparel in compression, fitted, and loose types to be worn in hot and cold. It also provides various footwear products for running, basketball, cleated sports, training, and outdoor. In addition, the company offers accessories, which include gloves, bags, and headwear; and digital fitness subscriptions, as well as digital advertising through MapMyFitness, MyFitnessPal, and Endomondo platforms.

Under Armour Inc (NYSE:UA) most recently announced plans to close all UA Brand House and UA Factory House retail locations in the United States for Thanksgiving (November 26). All U.S. retail locations will re-open to the public on Friday, November 27.

“This entire year has been unpredictable and for all of us, challenging in our own ways,” said Patrik Frisk, CEO of Under Armour. “It’s important to take the time to acknowledge and celebrate the wins that we’ve accomplished throughout 2020. For that, we’re closing our stores to give our retail teammates a chance to pause and enjoy the Thanksgiving holiday before finishing out the year strong.”

It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things.

Under Armour Inc (NYSE:UA) generated sales of $706.2M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -23.9% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.1B against $1.6B, respectively).

 

Splash Beverage Group Inc (OTCMKTS:SBEV) specializes in manufacturing, distribution, sales & marketing of various beverages across multiple channels, including TapouT sports drinks, an international lifestyle brand that has been at the forefront of Mixed Martial Arts since 1997.

MMA is the fastest growing sport in the US over the past 10 years, and there’s no reason to believe that won’t be the case over the next ten years. The TapouT brand is big in MMA circles and stands to benefit from a return to full action and major MMA events over coming months.

This is a more speculative stock in this basket, clearly, but it also may have the biggest upside potential over time given its early-stage profile and discounted share price. We include it here because of the company’s recent major news catalyst – SBEV is expanding into the Chinese market, which is the largest alcoholic beverage market in the world (the company also sells a line of branded spirits).

Splash Beverage Group Inc (OTCMKTS:SBEV) most recently announced that it has secured distribution and Manufacturing capabilities in Greater China for its hydration and recovery brand TapouT Performance and distribution for its brand SALT Naturally Flavored Tequila by entering into a distribution agreement with China-based American Software Capital.

According to the release, ASC will initially import and distribute TapouT and SALT Tequila beverage products in China as it works with Splash to position the Company for manufacturing capabilities over the intermediate term in order to streamline operations and maximize profitability in the region. ASC is also well-positioned to seamlessly incorporate additional brands as Splash continues to acquire and/or internally develop new brands, product lines and concepts.

“The thirst for Western brands continues to increase across Asia,” commented Robert Nistico, CEO of Splash. “We believe our relationship with ASC, one of China’s top manufacturers and distributors, will position Splash to capitalize on this trend. ASC has extensive relationships with top retail chains, and I’m confident this will further our advantage as we enter the Chinese market.”

Splash Beverage Group Inc (OTCMKTS:SBEV) estimates it will have net sales between $750,000 to $1,000,000 for the 13-week third quarter ended September 30, 2020. This would represent significant sequential quarterly growth. The company posted sales of just over $600k in its prior quarter ended June 30. However, access to the booming Chinese marketplace suggests much bigger numbers could lie ahead if the execution is there.

 

Lululemon Athletica Inc (NASDAQ:LULU) bills itself as a company that designs, distributes, and retails athletic apparel and accessories for women, men, and female youth. It operates through two segments, Company-Operated Stores and Direct to Consumer.

The company offers pants, shorts, tops, and jackets for healthy lifestyle and athletic activities, such as yoga, running, and training, as well as other sweaty pursuits, and athletic wear for female youth. It also provides fitness-related accessories.

Lululemon Athletica Inc (NASDAQ:LULU), in an interesting move, announced over the summer that it entered into a definitive agreement to acquire MIRROR, a leading in-home fitness company that created an interactive workout platform that features live and on-demand classes, for a purchase price of $500 million.

Calvin McDonald, Chief Executive Officer, commented, “In 2019, we detailed our vision to be the experiential brand that ignites a community of people living the sweatlife through sweat, grow and connect. The acquisition of MIRROR is an exciting opportunity to build upon that vision, enhance our digital and interactive capabilities, and deepen our roots in the sweatlife. We look forward to learning from and working with Brynn Putnam and the team at MIRROR to accelerate the growth of personalized in-home fitness.”

Even in light of this news, LULU hasn’t really done much of anything over the past week, with shares logging no net movement over that period.

Lululemon Athletica Inc (NASDAQ:LULU) generated sales of $902.9M, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 38.5% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($523M against $763.3M, respectively).

 

 

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email ([email protected]) or his Google+ page (https://plus.google.com/103338576216002376250).



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