As previously documented on BRIIDGE, skyrocketing interest rates caused a shift in investors' priorities prior to the transition to easing monetary policy.

With rates at historic levels, the impact on financing costs, discount rates, and the money supply led to a reevaluation of investment themes and a transition away from long-duration assets driven by expectations of short-term corrections tied to declining disposable income and ongoing valuation resets.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

The footwear accessories industry, despite its cyclical nature, has performed in line with the broader market on an equal-weight basis over the past three years and has notably outpaced it since the end of the pandemic.

The apparent lack of cyclicality in contrast to the reference sector [Consumer cyclical], which underperformed the benchmark over three and five years, can be attributed to strong demand for premium and performance footwear as well as strategic brand expansion for market cap leaders such as Deckers Outdoor Corporation, On Holding AG, and Skechers U.S.A..

Inflation pressure was mitigated by disciplined operating models and innovation within the footwear industry. Inventory management has played a significant role in the commercial success of the above names, an aspect of the business that was overlooked by NIKE, which was forced to proceed with aggressive discounts to clear inventory.

In addition to rising inflationary pressures linked to materials, shipping, and labor, the company was also impacted by the slowdown in China - a key market- which saw declining revenue for the region for several quarters over the past three years.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

The above headwinds translated into heightened sales figures volatility for Nike and negative growth for the past four quarters while the industry’s median is positive.

A comparative analysis of the industry against the reference sector shows more resilient sales figures, higher bottom-line margins, and a lower debt burden with an interest coverage ratio four times the reference sector’s median for the 4 quarters ending Q2 2024. With the transition to easing monetary policy in motion and stimulus measures in China, an arbitrage play may be in sight.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

BRIIDGE Shortcut: TS Reference Index

Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA