Sneaker enthusiasts are losing market share, but Nike’s stock price is benefiting

Sneaker enthusiasts are losing market share, but Nike’s stock price is benefiting.

ASICS seizes the trend market, but Highly stable professional sports sector achieves growth hedging The character wears blue rolled-up jeans, gray socks, and ASICS running shoes in red, burgundy, and orange colors. The "dad shoes" trend has brought huge profits to ASICS. Say goodbye to Nike Air Jordans, ASICS retro thick-soled dad shoes are having a moment.

Nike (ticker: NKE, up 0.43%) lost out to Japanese brand Asics (ticker: 7936, down 1.42%) in the trendy sneaker race. For Asics, this victory has hidden worries; for Nike, this is actually a low-key victory. The popularity of running is rising, making ASICS, which has been deeply involved in the running shoe track, popular.

In the past three years, ASICS has been the strongest performing sports shoe stock, with its stock price more than tripling. Nike has long relied on trendy casual shoes such as Air Jordan 1, Air Force 1, and Dunk to win. Its running shoe track layout lagged behind.

During the same period, its stock price plummeted 62%, making it the worst-performing stock among the sports shoe giants. Now the industry structure may be about to reverse.

Nike's forward price-to-earnings ratio has fallen back to 23 times, 22% lower than its historical average; ASICS's price-to-earnings ratio has risen to 26 times, completing its overtaking of Nike within the year. The market's expectations for Nike have dropped, and investors may wish to re-examine this company.

Although short-term growth expectations are pessimistic, an inflection point in Nike's fundamentals has appeared. The key signal is that the business scale of trendy casual shoes has returned to a healthy range, and the professional sports sector has steadily strengthened, which is expected to support the upward trend of the stock price.

Elliott Hill, who took over as Nike CEO two years ago, has been pushing the company to return its focus to professional functional running shoes. This category relies on the rigid needs of sports and is more stable than trendy shoes that rely on popular trends.

Nike's previous management over-bet on trendy basketball shoes such as Dunk, but when the popularity of retro basketball cooled down and the public's aesthetic turned to running shoes, this strategy completely failed. Citi equity analyst Monique Pollard said that investors generally prefer brands that are deeply involved in professional sports.

This type of business is the core foundation of the brand. Jefferies analyst Randall Konik said that Nike aims to return to its classic revenue structure: professional sports categories account for 60%, and trendy casual shoes account for 40%. A number of data proves that the transformation is effective.

Nike's share of trading volume on the second-hand sneaker trading platform StockX has declined, indicating that the fashion business is shrinking reasonably. Citi Research statistics StockX data: As of June, Nike’s platform trading volume accounted for about 70%, and it was as high as 77% at the end of 2023.

At the same time, the prices of Air Jordan 1 and Air Force 1 on the platform have recovered, indicating that the previous problem of oversupply of goods has been alleviated. On the other hand, Nike's professional sports sector continues to recover.

The latest earnings conference call revealed that the running shoe business has achieved double-digit growth for five consecutive quarters, with cumulative new sales of approximately US$1 billion in the range.

In the full fiscal year ending May 31, Nike running shoes gained a total of 5 percentage points of market share increase in Western Europe and North America. Since Hill launched the reform, consumers have Searches for Nike Vomero and Pegasus running shoes continue to rise. Customers browse sneakers at a new Nike store.

Nike’s running shoe segment has posted double-digit growth for five consecutive quarters. ASICS' development trend is exactly the opposite. The brand is basically based on professional running shoes, but in recent years, its trendy casual business, including high-end Onitsuka Tiger, has grown faster than professional running shoes.

ASICS plans to spin off Onitsuka Tiger and list it independently in early 2027. Asics quickly emerged from the fashion industry by riding on the dad shoe craze.

This type of shoe focuses on retro thick-soled and mesh running shoe designs from the early 21st century, continuing to divert the trendy market that was originally monopolized by Nike's retro basketball shoes. Nike also launched its own line of thick-soled running shoes to counter the competition.

ASICS' professional sports segment now accounts for 55.4% of revenue, a significant decline from 64.5% in 2022; the trendy leisure segment has higher profit margins, and structural changes have increased overall net profit. In the past three years, ASICS’ net profit has grown at a compound annual rate of approximately 70%.

ASICS still has room for growth: its size is much smaller than Nike's, and the popularity of running shoes continues.

According to Citi's StockX data in the past 12 months, the average second-hand price of ASICS sneakers is about 20% higher than the offering price, which is higher than all competing products, indicating that the brand's trendy shoes have not been flooded in supply. But investors need to be wary of ASICS' increasing reliance on trendy hits.

No brand can escape the cyclical risks of fashion trends, even industry giant Nike is no exception. For Nike, it may take another two or three quarters for revenue to recover.

Trend's business is shrinking and suppressing revenue in stages; according to Visible Alpha statistics, Wall Street predicts that Nike's sales at fixed exchange rates will decline for two consecutive quarters. But when revenue returns to the growth track, the stock price will most likely no longer be cheap, and it is more appropriate to plan ahead now.

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