Sports Finance Report: “Mall Is Still Not Dead” as Foot Locker Earnings Send Share Price Up +20%

TORONTO, ONTARIO, CANADA - 2015/08/23: Signage of Foot Locker store on the fascade. Footwear on display inside the showroom. Foot Locker Retail, Inc. is an American sportswear and footwear retailer, with its headquarters in New York City, and operating in approximately 20 countries worldwide. (Photo by Roberto Machado Noa/LightRocket via Getty Images)

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“Mall Is Still Not Dead” as Foot Locker Earnings Send Share Price Up +20%

On Friday May 25, Foot Locker (FL) reported same sales stores declined just -2.8% YoY (analysts expected -3.6%) in Q1 ‘18, sending shares of the stock rising by +20% (to $55.81). Foot Locker buys 65-70% of the product it carries from Nike, so the brand continues to drive the brick and mortar retailer’s sales (+1.2% to $2.03 billion); but sales of Fila, Vans and Champion sneakers/apparel also contributed meaningful revenue to the company’s bottom line (-8.3% YoY, $165 million). While Nike and Adidas are increasing DTC sales, Foot Locker has managed to offset the reduced sales volume by increasing sales of higher priced products. CNBC’s Jim Cramer was so encouraged by the company’s quarterly results that he proclaimed the “mall is still not dead.”

Howie Long-Short: Friday’s report and resulting pop was welcome news for shareholders fearful of a pending Amazon takeover (as a sneaker/apparel e-tailer) and Nike/Adidas cutting off access to premium products. Of course, FL is hardly out of the woods on the second front; the company acknowledged that while tighter distribution has coincided with an increase in full price sales, the reduced allocations will “continue to be a top line headwind over the next few quarters.”

As for Cramer’s comment, why does FL have plans to close 110 under-productive stores in 2018 – after closing 147 locations in 2017 – if establishing residency in a mall still made sense? FL said back in March that it was working to reduce its exposure to “deteriorating malls”, instead focusing on opening up 40 more “select, high-profile” stores (the company opened 94 in ’17). If/when malls figure out how they’re going to replace anchor tenants like Sears and J.C. Penney, I’ll buy Cramer’s story; until then, I’ll maintain mall owners should consider repurposing their properties as data centers, schools or micro apartment complexes.

Fan Marino: Hibbett Sports (HIBB) released its first Q1 ’18 earnings report on Friday 5.25 too, but investors weren’t nearly as pleased with the results. Analysts had expected the company to report a same store sales increase of +1.2% YoY, but the company reported a -.03% YoY decline. Shares dropped -15.6% by Friday’s close, but rebounded +6.5% on Tuesday (to $26.00).

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League of Legends Experiences “Biggest Setback Ever”, $100 Million Investment in Fortnite

Riot games has signed a non-exclusive multi-year deal with ESPN to broadcast live League of Legends games on their OTT streaming service, ESPN+. esports reporter Travis Gafford called the development the game’s “biggest setback ever”, because the deal marks the official end of the 7-year $300 million agreement Riot Games signed with BAMTech in 2016. The North American League of Legends Championship Series Summer Split beginning on June 16, will be the first tournament to air on the streaming service; the Summer Finals and World Championships later this year, are also set to appear on ESPN+. It’s worth noting that the 2017 World Championship drew upwards of 80 million unique viewers for a single match.

Howie Long-Short: In a vacuum, there’s nothing wrong with the deal; it should be profitable and expose the game to a new audience. The deal with ESPN+ was the final nail in the coffin, but the BAMTech deal died when The Walt Disney Company (DIS) acquired a 75% of the company back in August ’17. Under the terms of the BAMTech deal, League of Legends would have had an exclusive platform to deliver content (think: Yankees and YES Network) – the 1st exclusive media rights deal in esports history – as opposed to simultaneously broadcasting streams on Twitch, YouTube and ESPN+, as they’ll do now. The deal with ESPN+ will certainly result in fewer dollars, but it’s the validation (appearance of game warranting its own broadcast platform) that the BAMTech deal brought, that they’ll miss the most.

I’m not sure I understand this deal from the ESPN perspective. While it’s logical to diversify the programming offered on ESPN+, they won’t be adding subscribers with non-exclusive content that can be watched elsewhere for free.

Riot Games is a fully-owned subsidiary of Tencent, the world’s biggest video game publisher and Asia’s 2nd most valuable publicly traded company. In addition to owning Riot Games, the company is the majority owner of Supercell (Clash of Clans and Clash Royale), they own +/- 50% of Epic Games (see Fan below) and +/- 25% of Activision Blizzard (ATVI, Call of Duty, World of Warcraft, Overwatch, and Candy Crush).

Shares of TCEHY are down 14.5% (to $50.95) since March 15th, shortly after the company reported rising expenses during its Q4 earnings report. On May 16th, the company reported Q1 ’18 earnings. Profits rose 61% YoY (to $3.6 billion) on revenue that grew 48% YoY (to $11.4 billion). Gaming revenue spurred the growth, with smartphone gaming alone bringing in $3.3 billion (+68% YoY) in revenue. Looking for a reason to believe TCEHY can continue increasing gaming revenue? They own the rights to PlayerUnknown Battlegrounds in China and have yet to begin monetizing it.

Fan Marino: Epic Games has invested $100 million to fund Fortnite tournament prize pools, with the competition set to debut later this year. At $100 million, the prize pool is more than 4x greater than the 2nd largest sum ever offered in a competitive gaming prize pool – $23 million for DotA 2’s 2017 esports tournament. Of course, $100 million is just 1/3 of a single month’s revenue for Fortnite – the game generated $296 million in April, up a staggering 134% since February.

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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 (GOLFELY, 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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