What does soaring economic uncertainty mean for the leisure brands/retailers industry?
It’s not good, Bank of America analysts say.
“Our economists are now forecasting a mild recession in the second half of 2022, and we note the group of leisure brands and retailers we cover generally underperformed the S&P 500 during the 2008-2009 financial crisis.”
But the analysts offered some positive commentary on Dick’s Sporting Goods (DKS); Academy Sports + Outdoors (ASO), another sporting goods retailer; Harley-Davidson (HOG); Planet Fitness (PLNT), a fitness-center chain; and Life Time (LTH) , another fitness-center chain.
As for Dick’s, “we believe structural improvements support [3 percentage points] of permanent merchandise margin expansion since 2019,” the analysts said.
They cite the company’s new clearance/pricing strategy, increased private-label penetration, better product allocations, and favorable mix tailwinds.
Academy Sports, Harley-Davidson
“At Academy Sports we see 32.5% (versus 29.6% in 2019) as the new gross margin floor,” the analysts said. That’s due to better merchandise planning, expanding margins in private label and better product allocations, they said.
Academy’s significant store-growth opportunity (100 over the next five years), also should help, they said.
At Harley, “supply-chain constraints have dramatically restrained new motorcycle sales, which have declined 3%” in the first four months of 2022 versus the same period of 2019, the analysts said.
But combined new and used motorcycle sales are up 9%, thanks to 12% growth in used-motorcycle sales, they said. They see at least 20,000 bikes of pent-up demand for new U.S. shipments, in the context of 2019 U.S. shipments of 124,000.
Harley’s recent production shutdown could hurt second-quarter earnings, but it should recapture lost production in the second half, the analysts said.
Planet Fitness, Life Time
They view Planet Fitness as “the top positioned fitness company in a recession.” Club usage has now exceeded 2019 levels, the analysts noted. And “membership signups should follow.”
Members per club will likely return to prepandemic levels by the end of this year or early next year, the analysts said.
As for Life Time, it's “well positioned given that in the [2008-09 recession] it had only one year of same-store sales declines (2009),” the analysts said.
Meanwhile, its adjusted earnings before interest, depreciation, amortization and rent margins increased through the recession.
And, Life Time’s club usage as of June was the strongest since covid began, though still 14% below the 2019 total, the analysts said.
