LONDON, ENGLAND - AUGUST 20: lululemon athletica hosts an out of the ordinary yoga class at the Serpentine Pavilion, as a celebration of summer on August 20, 2014 in London, England. (Photo by Ben A. Pruchnie/Getty Images for lululemon athletica)
Editor’s Note: Welcome to a daily column we run here at BroBible breaking down the day’s biggest stories in sports finance with commentary from the sports money and sports fanatic perspectives. It comes to us via our friends at JohnWallStreet, publisher of a free e-mail newsletter focused on sports related public equities and their subsidiaries. You can sign up here.
Lululemon Athletica CEO Out Amidst Multiple Claims of Misconduct
Lululemon Athletica, Inc. CEO Laurent Potdevin has resigned effective immediately, with the yoga wear brand saying the former executive “fell short of … standards of conduct”. LULU has not cited specific examples of Potdevin’s misconduct, but reports indicate the unprofessional behavior (unrelated to corporate finances or operations) was not limited to a single incident; though, no legal settlements have been paid and no criminal charges are pending. Executive Chairman Glenn Murphy will take over Potdevin’s role, until the board decides on a long-term replacement. LULU shares fell 3% (to $75) after hours on Monday.
Howie Long-Short: Potdevin was successful as CEO; helping the company through supply chain issues, growing its men’s business and building a presence within China, so this can’t be considered good news (though founder Chip Wilson may dispute that). Lululemon shares gained 21% in 2017 and have been trading just a few dollars off the all-time high ($81.92). The company did say Potdevin’s absence will not impact its 2018 earnings projections.
Fan Marino: LULU reported its “highest traffic” and “largest sales” ever on Black Friday and Cyber Monday, so January’s news that the company was raising sales forecasts (from mid-single digit to high-single digit growth YOY) for Q4 ’17; wasn’t exactly a surprise. Expectations are the company will post quarterly net revenue between $905-$915 million, equating to 15-16% YOY growth, when 4th quarter results are released on March 27th.
Harley-Davidson U.S. Sales Decline 8.5% in 2017, To Close K.C. Plant, Slash 800 Jobs
Harley-Davidson (HOG) sales declined 6.7% YOY in 2017, including 8.5% in the U.S. market; so, the company will proceed with plans to close its Kansas-City, MO based final assembly plant. The consolidation, which will cost 800 employees jobs, will save the company $170 million to $200 million over the next 2 years; with an on-going annual savings of $65 million to $75 million, by 2020. The company did not comment on the status of its Wisconsin based manufacturing facilities (Menomonee Falls & Tomahawk). While aging baby boomers and difficult economic conditions, in pockets of the country, are contributing to HOG’s sales struggles; a strong U.S. dollar has enabled foreign manufacturers with overseas facilities to sell bikes in the country at lower prices (up to $3,000 less/bike) with greater profitability.
Howie Long-Short: Net income declined a staggering 82% YOY in Q4 ’17 (to $8.3 million), as a one-time charge associated with President Trump’s tax cut and a $29.4 million expenditure on a voluntary product recall more than off-set the quarterly revenue growth (+11% to $1.23 billion). Moving forward, HOG’s plans to reduce inventory volume and tightly managing costs are sensible; but, how long does it take to develop a new generation of riders capable of turning around the company’s fortunes? Cruiser and touring motorcycle sales have been on a steady decline since 2006 (when HOG generated $252.4 million in profits).
Fan Marino: Harley put forward a strong effort to reach the younger demographic, debuting the Harley-Davidson Snow Hill Climb at X Games Aspen 2018 (occurred 1/25-1/28). The medaled event placed riders on modified H-D Sportsters, with the goal to reach the top of the SuperPipe course first. Travis Whitlock was your Gold medal winner. Harley isn’t the first motorcycle company to look to X Games for future riders, in ’17 Indian Motorcycle (PII) debuted its Scout Bobber bike at the summer X games. While still in Harley’s rear-view mirror, Indian is coming on strong. The company increased U.S. sales 17% in Q4 2017 and “continued to gain significant market share for the 2017 fourth quarter and full year on a YOY basis”
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Newell Brands to Unload Official Ball Manufacturer of MLB, Sell Half of Factory/Warehouse Footprint
Rawlings Sporting Goods, the official ball manufacturer of Major League Baseball, is going to be sold for a 4th time since 2002; this time by Newell Brands (NWL). Newell is “exploring strategic options” for several subsidiaries that don’t align with their renewed focus on household products (9 core consumer divisions). The company, which has doubled in size since its 2016 acquisition of Jarden Corp., announced it will also look to cut its factory and warehouse footprint in half as part of the reorganization.
Howie Long-Short: Deutsch Bank (DB) analysts aren’t high on Rawlings’ business, considered the least valuable the 8 brands NWL wants to sell; worth an estimated $360 million (8x EBITDA, lowest multiple among the 8 brands). While NWL is going to end up selling some of the brands it bought from Jarden at multiples lower than they acquired them for, a company spokesperson was quick to note the company will remain far bigger than it was prior to the acquisition ($11 billion in revenue over 1st 9 mo. of ’17 vs. $6 billion prior). NWL shares are down 16% ($26.12 at Monday’s close) since news of the restructuring and 41% over the last 12 months.
Fan Marino: Rawlings, which also produces basketballs and footballs, has a well established reputation (121 years) and “good market share”; but, operates in a category (sporting goods) that simply isn’t growing. According to the National Retail Foundation, it was the only sector that failed to grow YOY (-.5%) during the holiday season. That likely limits potential buyers to companies that already operate within the space.
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What is JohnWallStreet?
JohnWallStreet, located at the intersection of sports and finance, is a destination for the educated sports fan.
While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related business news, in easily digestible bites, with commentary from both the sports money and sports fanatic perspectives.
We’ll cover publicly traded professional teams & stadiums (MSG, RCI, BATRA, MANU), television networks (DIS, FOXA, CMCSA, CBS, TWX, MSGN), apparel & footwear companies (NKE, UAA, ADDYY, FL, LULU), equipment companies (GOLF, ELY, FIT), ticketing companies (EBAY, LYV) content and facilities providers (CHDN, DVD, ISCA,TRK, LMCA). If it trades on Wall Street, and has a sports angle, it’s in our wheel house.
Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.
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