We recently compiled a list of the 10 Best Sporting Goods Stocks To Invest In Now. In this article, we are going to take a look at where Foot Locker, Inc. (NYSE:FL) stands against the other sporting goods stocks.
The sports industry typically generates millions of dollars through events, promotions, and endorsements. It is one of the few sectors that continued to prosper, even during the pandemic. The global sporting and athletic goods market is projected to grow significantly, driven by consumer health awareness and rising demand for fitness products. The market value reached $52.02 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 3.2% through 2032, due to innovation in sporting technology and materials. Sports stocks have climbed more than 10% year-to-date, pushing the sports index of the broader market to its highest level since July of last year.
The market has experienced a sudden increase in demand as it recovers from the pandemic. The pandemic initially disrupted the market with postponed events like the Olympics and supply chain challenges. However, increased consumer awareness around fitness and health post-pandemic has further fueled the global demand for sports and sporting goods.
This growth in demand has varied across regions. Western Europe and Asia Pacific have been at the forefront of the sales recovery, while Latin America has maintained its impressive growth momentum. North America also achieved steady progress, building on its previous year’s performance. Looking ahead, Latin America and Southeast Asia show the greatest potential, with growth rates of 22% and 11%, respectively, in 2023. Meanwhile, although China rebounded after a challenging 2022, analysts remain cautious about future growth due to ongoing economic difficulties.
Global economic challenges, such as high inflation and uncertainty, are shaping consumer behavior. Rising prices are a top concern for consumers worldwide, affecting purchasing power and brand loyalty. Despite these challenges, sports participation is increasing in some regions, particularly in activities that are accessible, social, and less time-consuming. For instance, customer preference for pickleball and paddle tennis has increased by 159% since the pandemic. As consumer preferences evolve, companies are adapting their strategies to cater to different demographics, particularly the expanding older population.
Rising Demand for Sustainable Sporting Goods
One of the key trends in this industry is the increasing preference for sustainable sporting goods. Despite economic pressures, many consumers are willing to pay 9.7% more on average for products that have a positive environmental impact. Legislation is also playing a big role in driving sustainability. Laws like the U.S. Inflation Reduction Act and the EU Green Deal are pushing investments in green energy and sustainable solutions, including in sporting goods. The EU’s Ecodesign for Sustainable Products Regulation and Waste Framework Directive are setting stricter standards for product design, recyclability, and end-of-life management. Moreover, regulations like the EU Corporate Sustainability Reporting Directive are increasing the pressure on companies to be transparent about their environmental and social impacts.
To address these challenges and capitalize on emerging opportunities, more than 80% of sporting goods companies, both large and small, are adopting ambitious sustainability goals like CO2 reduction targets. By adopting sustainable practices, companies can not only benefit the planet but also boost brand reputation and attract eco-conscious consumers. With this context in mind, let’s take a look at the best sporting goods stocks to invest in now.
Our Methodology
We analyzed multiple stock screeners and ETFs to compile a list of the best sporting goods stocks. From this list, we identified the 10 stocks most favored by elite hedge funds as of Q3 2024. The hedge fund sentiment data was obtained from Insider Monkey’s database of 900 funds. The best sporting goods stocks have been ranked in ascending order of the number of hedge funds holding a stake in them.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A shopper browsing the wide selection of trendy footwear in a franchised store.
Foot Locker, Inc. (NYSE:FL)
Number of Hedge Fund Holders: 27
Foot Locker, Inc. (NYSE:FL) is a global retailer specializing in footwear and apparel. It operates various brands, including Foot Locker, Kids Foot Locker, Champs Sports, WSS, and atmos. Customers can shop at physical stores, online, or through mobile apps. The company has been around since 1879 and is headquartered in New York City.
The company reported a 2.4% increase in total comparable sales for the quarter, driven by share gains in the global Foot Locker and Kid Foot Locker banners, which saw a 2.8% rise. Champs Sports and WSS also returned to positive growth, with increases of 2.8% and 1.8%, respectively, driven by strong back-to-school performance.
Foot Locker, Inc.’s (NYSE:FL) gross margin also improved by 230 basis points year-over-year. This was primarily driven by a recovery in merchandise margins compared to the higher promotional activity of the prior year. Meanwhile, Foot Locker, Inc.’s (NYSE:FL) digital sales penetration increased by 60 basis points year-over-year, reaching 17.6% of total sales for the quarter. The company is on track to achieve its target of approximately 25% e-commerce penetration by 2026.
Foot Locker, Inc. (NYSE:FL) has also made progress in its partnership with Nike over the past few quarters. The company has a long-standing relationship with Elliott Hill. Ongoing collaborations include the expansion of their work with Nike and Jordan Brand on the clinic and the Foot Locker Home Court basketball experience. In the short term, the company is on track to return to growth with Nike in the fourth quarter, supported by a strong launch calendar compared to both the third quarter and the same period last year.
Jim Cramer also displayed confidence in the company’s long-term prospects in September. Here’s what he said:
“Second down retailer hits too close to home. I’m talking about Foot Locker. As a former holding of the Charitable Trust, we bailed on in June. Absolute numbers here were not as strong as ANF’s. Foot Locker still firmly in turnaround mode under new CEO Mary Dillon. I should say relatively new, but they were still better than expected across the board.
“I actually like the quarter. After five quarters of same-store sale shrinkage, Foot Locker returned to growth, up 2.6%. Handily beat the expectations. That should have been enough to keep the stock a little bit higher. Gross margins expanded. That should have been enough. Inventories decreased by 10%. That should have been enough. And they only lost 5 cents per share when Wall Street expected a 7-cent loss. But they still lost money.
“How come the stock lost 10%? Well, first, the stock came into the quarter again, like some of these others, very hot, up 45% from the last time the company reported in May. Second, I think the sellers are basically saying that they don’t believe Foot Locker can make its full-year forecast because they’ll need a couple of strong quarters to make the numbers, especially on the earnings front.
“But having listened to the conference call, management laid out some major positives. Most important of all, Foot Locker’s relationship with Nike seems to have improved substantially. Nike needs them more than Nike thought. That’s very important. It ain’t just old DTC at the end of the day.
Foot Locker’s a turnaround story. It’s going to take at least a couple more quarters to unfold, but it’s going to unfold. Stock may have gotten ahead of itself over the summer, one reason why we sold it for the Charitable Trust, but if you have a longer-term view, I think this is a viable dip.”
Overall FL ranks 8th on our list of the best sporting goods stocks to invest in now. While we acknowledge the potential of FL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.