We recently hosted our 4th Annual Utah Active & Healthy Lifestyle Corporate Access Event in Park City from December 9-11. The event featured 1-on-1s, small group meetings, and selected site visits. We had mixed takeaways from our meetings with several companies.
- A Well-Received Event. The three-day event included 1-on-1s and small group meetings with CEOs and CFOs of more than 20 companies across the Consumer, Media, and Business Services Sectors and featured 10 in the Active & Healthy Lifestyle sector, including some of our covered sports equipment manufacturers, brand managers, and apparel companies.
- Mixed Takeaways. Performance Sports Group (PSG – Buy) remains one of our top recommendations due to its leading brands, continued share gains in sports with growing industry spending, high-growth lacrosse business, and easily-scalable performance R&D platform. The company’s profit-improvement plan is seemingly on the verge of bearing fruit and we are optimistic that PSG can soon generate positive FCF to pay down its significant debt. Meanwhile, upcoming bat standard changes may not weigh on FY17 results to the magnitude that some investors may anticipate. Offsetting this, we see risk to FY16 estimates and guidance due to currency pressures that have accelerated in recent weeks. We continue to see accretion from Sequential Brands’ (SQBG – Buy) recently-closed acquisition of Martha Stewart, though pro forma leverage looks higher than we previously anticipated and accretion could be more back-end loaded due to time for transitioning Martha’s publishing business. ZAGG’s (ZAGG – Neutral) 4Q15 results could exceed estimates and while we worry about difficult 2016 comparisons, results could benefit from iPhone’s potential form factor change and/or earlier launch. We came away with positive takeaways for Escalade (ESCA – Buy) and Gaiam (GAIA – Buy) and noted mixed data points for Cherokee (CHKE – Buy) and Delta Apparel (DLA – Buy).
- More Positive On Skullcandy Following Fireside Chat. Headphone category growth at POS slowed from the mid-teens through 2015’s first 10 months to down HSD in the month of November, but Skullcandy (SKUL – Buy) grew 30% despite fewer promotions than peers. Management also noted a 20%-30% increase in sell-through at stores with new listening stations and strong Black Friday trends at certain key retailers. Meanwhile, the company continues to target LDD top-line growth, above current consensus expectations for 2016 growth of 7.8%. Working capital concerns seem overblown, given accelerated payment programs that are just beginning to benefit margins (at a double-digit ROI) and SKUL shares look undervalued at 0.9x tangible book and 1.0x working capital.
- An Encouraging Sportsman’s Warehouse Visit. We visited with management from Sportsman’s Warehouse (SPWH – NC) and toured its new small-format store concept. These smaller boxes are more productive and should set the stage for expansion into many of the country’s more rural markets. We enjoyed management’s candor and commitment to strategy and were encouraged by the company’s inherent competitive advantage versus internet retailers due to its 50%-plus exposure to firearms. Meanwhile, Sportsman’s is seemingly more immune than peers to recent warm weather, given less apparel and footwear exposure.
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