3 Vulture Stocks That Will Feast on Sports Authority

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Sports Authority - 3 Vulture Stocks That Will Feast on Sports Authority

Source: Phillip Pessar via Flickr

Sports Authority’s failure shouldn’t come as a surprise to anyone in the sporting goods industry. The company was saddled with more than $1.1 billion in debt, and it simply couldn’t keep up with its obligations.

Sports Authority

Sports Authority now is in bankruptcy protection and faces a May 16 auction, and Dicks Sporting Goods Inc (DKS) likely will play a big role in what happens at that auction.

DKS finished fiscal 2015 with 741 locations, adding 47 net new stores over the course of the year. With Sports Authority’s 450 locations potentially up for grabs, you know Dick’s going to be looking to take market share. But even if it decides to stay out of the bidding fray, it wins through addition by subtraction. Come this time next year, there will be 450 fewer stores selling sporting goods. (How much fewer, we’ll soon find out.)

However, I think at least three other companies will benefit more from Sports Authority’s demise: Amazon.com, Inc. (AMZN), Foot Locker, Inc. (FL) and Under Armour Inc (UA) — each for different reasons, but benefiting just the same.

Let’s look at why each has a lot to gain.

Sports Authority Vultures: Amazon.com, Inc. (AMZN)

Sports Authority Vultures: Amazon.com, Inc. (AMZN)

Amazon has begun to focus its attention on live sports streaming, and although it failed to secure the streaming rights for Thursday night NFL games, it’s moving ahead with its plans to capture the very lucrative sports market, where viewers are far more likely to watch the ads presented than any other type of content, whether it be news or entertainment.

Now imagine what Amazon could do with live sports streaming to increase its retail revenues from sporting goods, both hardlines and softlines. In Q1 2016, it generated $20 billion in revenue from electronics and other general merchandise, an increase of 32% year-over-year.

The disappearance of Sports Authority gives consumers more reason to check out Amazon’s countless SKUs — for example, it’s said to carry 723 types of women’s shoes — many of which are priced lower than any other retailer, including Dick’s.

One less retailer flogging sporting goods removes a major distraction for consumers.

Sports Authority Vultures: Foot Locker, Inc. (FL)

Sports Authority Vultures: Foot Locker, Inc. (FL)

How does Foot Locker benefit?

That’s a good question, because it’s arguably the most successful publicly traded retailer in the sports category. Furthermore, it’s hard to imagine Sports Authority’s core audience heading over to Foot Locker. They’d be more likely to go to Dick’s or some of the regional players out there.

However, I do think Foot Locker’s online business will benefit from Sports Authority’s demise.

FL currently generates about 12% of its revenue from digital, up 50% over the last five years. Foot Locker’s 2015-20 Strategic Plan is all about customer engagement — including making the stores and websites more exciting, relevant places to shop (something Sports Authority wasn’t). And FL’s excellent track record for executing on its plans means it has a real opportunity to take market share organically in the next 12 to 24 months rather than through store openings.

And let’s not forget Finish Line Inc (FINL), which announced earlier this year that it’s closing up to 25% of its stores over the next four years due to declining sales. Those customers are right in Foot Locker’s wheelhouse.

Expect good things for FL stock over the next two to three years, even if it doesn’t see a dime from Sports Authority customers.

Sports Authority Vultures: Under Armour Inc (UA)

Sports Authority Vultures: Under Armour Inc (UA)

Under Armour is said to be owed $23.2 million by Sports Authority. That’s not a big hit by any means, but it does force the company to consider more closely who it partners with in the future.

Count that as a good thing for Under Armour, whose CEO Kevin Plank is opting to better control the company’s destiny as he opens another 200 stores this year.

The simple truth is that any time a manufacturer of consumer goods sells its products wholesale, it loses control of how and where its products are displayed and sold. Not only that, but it loses margin in the process. Now, a toothpaste manufacturer is not about to open its own stores to peddle its products, but in the highly competitive world of sporting goods where athletic shoes can go for more than $200, the ability to control the selling environment is critical to a manufacturer’s success.

Yes, it’s true that you can’t get to billions of dollars of revenue without reaching out to retail partners, but when your own stores act like giant billboards persuading people to buy your products, to not have a significant global presence is irresponsible (in my humble opinion).

If you own UA stock, Sports Authority’s demise is a small price to pay for future success.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/vulture-stocks-sports-authority-amzn-fl-ua/.

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