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Cowen: Sneaker Popularity, Resale Market Are Encouraging Signs For Brands

Brett Hershman

The hype around sneakers is at an all-time high.

The industry has been buzzing for years, evidenced by the rise of sneaker resale platforms, two of which, StockX and Poison, just hit unicorn status; the entrance of luxury brands; and growing interest in sneakers within womens fashion.

Gauging resale popularity has also become a pivotal way to gain valuable brand insights that can indicate what a company’s next move may be.

The Analyst 

Cowen's John Kernan reiterated Outperform ratings on:

Nike Inc (NYSE: NKE), with a $100 price target; 

Lululemon Athletica inc. (NASDAQ: LULU), with a $192 price target;

Adidas AG (ADR) (OTC: ADDYY), with a 265-euro ($297.67) price target. 

Kernan reiterated Market Perform ratings on: 

Foot Locker, Inc. (NYSE: FL), with a $64 price target; 

Under Armour Inc (NYSE: UAA), with a $23 price target. 

The Takeaways 

The popularity of Adidas' Yeezy line is accelerating, but lacks the scale of Nike's Jordan, Kernan said in a Thursday note. (See his track record here.) 

Yeezy resale prices, at 56 percent above retail, indicate a strong pull market, the analyst said, while Nike's scale in resale indicates a massive global opportunity and durability in the brand and its growth, 

More than ever, speed has become one of the most important catalysts for higher margins and value creation among fashion and sneaker brands, Kernan said. 

With trends moving faster than ever due to social media, the need to capture them quickly is of utmost importance, the analyst said. More on-trend product means more full-price sales, fewer markdowns and the maintaining of relevance, he said.

Nike’s average selling upside will continue to grow, Kernan said. 

Adidas stock could reach 300 euros or more by mid-2020, he said. 

“Adidas FY19 EBIT margin is likely to finish near 11.5%, in-line with the 2020 targets that management presented at its March 2017 Investor Day," the analyst said. 

"Given the strong execution and consistent upside to gross margin we think management can and will target higher margin targets, potentially three-year targets, to reach at least a 12.5% EBIT margin." 

The ascent of sneakers mean the sector has new entrants, most notably Lululemon, which announced it would start making their own footwear.

Kernan said he sees a path to a $240 share price for Lululemon by 2020.   

“Embedded in our forecast includes Men’s revenues reaching approximately $1.4B+, Women’s reaching $4.4B and Accessories reaching $477MM, along with International reaching $1.5B and Digital $1.8B +.”

Related Links:

Study: Nike Is The Top Apparel Brand Among Gen Z, Millennials

Cowen: StockX's Influence In Footwear Is Accelerating After M Funding Round

Photo courtesy of Nike. 

Latest Ratings for NKE

Date Firm Action From To
Apr 2019 Reinstates Buy
Mar 2019 Maintains Market Perform Market Perform
Mar 2019 Maintains Neutral Neutral

View More Analyst Ratings for NKE
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