My local park was full of groups picnicking on Friday evening. So many people were there that the Council painted circles on the grass to help groups with social distancing.
Nearby cafes have launched street-food promotions to coincide with these picnics. Some cafes sell takeaway cocktails for Victorians desperate for a drink after work.
Walking trails in the area are just as busy. I’m an avid walker, but cannot recall seeing so many people using the parks to exercise and meet friends outdoors.
That’s a good trend for retailers that sell outdoor clothing, shoes and equipment. And a reason why I like the long-term prospects for Super Retail Group (SUL), Kathmandu Holdings (KMD) and Accent Group (AX1).
Bears will argue this boom in outdoor activity is temporary rather than permanent. That when most shops reopen, people will return to old habits and spend extra time indoors.
Also, an expected wetter-than-usual summer this year (thanks to the La Nina weather pattern) could force more people indoors and stymie the outdoor-activity boom.
Shut international borders are another negative. Kathmandu and Macpac (owned by Super Retail) are go-to shops for many Australians before they backpack or trek overseas.
The end of JobSeeker and JobKeeper payments (in December 2020 and March 2021 respectively) is another concern. High unemployment is an awful backdrop for retail.
Retail sales growth for September fell 1.5% compared to August, although was up on the same time last year, data this week showed. Victoria dragged down the monthly result.
Then there are valuations. Super Retail, Accent and, to a lesser extent, Kathmandu have leapt from their March lows, after tanking during the pandemic-fuelled share market selloff.
Consider Super Retail. I wrote favourably about it in the Switzer Report in early May (“Takeover Targets to Tempt Predators”). Super Retail was $6.65 then and is $11.88 now.
I could go on with other risks for outdoor-wear retailers. But I’ve learned during 30 years of share market writing that the best investment tools are your eyes, ears and experiences.
My hunch is a lot more people will spend a lot more time outdoors in the next few years. Some will do so because of COVID-19 and State Governments encouraging outdoor activity, such as alfresco dining. Others will favour the outdoors because COVID-19 has changed their habits.
For example, they used to attend the gym but now prefer a run outside. Or they spent hours watching TV on weekends, then realised during COVID-19 that a walk is better.
Interest in local parks and nature is nothing new. COVID-19 has simply sped up that trend, just as it has quickened e-commerce, e-learning, telehealth, fintech and other established trends.
I suspect Super Retail Group, Kathmandu and Accent Group will beat expectations next year because the market has not sufficiently realised the change underway in outdoor activity.
Or how many shoes, hiking clothes, leisurewear, bikes, sporting goods and other products will be sold in their in stores and online (these products are well-suited for omni-channel retailing).
Here’s a snapshot of these 3 stocks:
1. Super Retail Group (SUL)
The diversified retailer looks like its product offering was designed for life after COVID-19.
Its Super Cheap Auto division, a car-parts accessories provider, will benefit as more people holiday domestically, favouring road trips over air travel. Its Rebel Sport chain will benefit as people buy exercise wear, sporting goods, and equipment for home gyms. The Macpac outdoor wear chain will gain as more people buy adventure wear.
Super Retail posted a good FY20 second-half performance, supported by a rebound in Super Cheap and Rebel. Like-for-like sales in the first half of FY21 (to date) were well up.
Strong growth in online sales featured. Management is doing a good job building a physical/digital delivery strategy for Super Retail.
But for all the operational positives, Super Retail’s valuation is an obstacle, given the extent of recent share-price gains. The stock has soared from a $2.99 low in March.
Still, I wouldn’t take profits on Super Retail just yet. Those who own the stock should keep holding it. Those who don’t could buy it on any significant price weakness ($10- $11).
Chart 1: Super Retail Group
Source: ASX
2. Kathmandu Holdings (KMD)
The New Zealand outdoor wear chain has lagged Super Retail’s recovery. Kathmandu’s one-year total return of -42% compares to +33% for Super Retail.
Kathmandu has been one of my preferred small retailers, but it has been performed modestly in the past five years (an 8% annualised total return). I have long thought Kathmandu’s Summit Club database (and its millions of members) has immense value in digital retailing.
Kathmandu bought Rip Curl five months before the pandemic began for NZ$368 million. No doubt Kathmandu wishes it bought the surf wear group during the pandemic (at a lower price). But management has publicly commented on the boom in surfers this year.
CEO Xavier Simonet told the Australian Financial Review in late September: “People are not buying stuff for international travel but they’re exploring the outdoors around where they live – local travel and tourism is growing, camping is safe, and it’s a big opportunity for our businesses.” I couldn’t agree more.
Kathmandu has many challenges with its Victorian stores still shut (only until this Monday, I hope) and international border closures hurting travel-related clothing sales. But the company has a booming online sales offering, a strengthened balance sheet and an excellent product/store offering.
Prospective investors need patience. It will take time for Kathmandu to get back to its 52-week high of $2.61 (the stock is $1.21). Kathmandu is well positioned for the lift in outdoor activity and eventual return of domestic/international travel in the next few years.
Kathmandu is also more attractively valued than Super Retail at current prices.
Chart 2: Kathmandu Holdings
Source: ASX
3. Accent Group (AX1)
Like Super Retail, Accent has soared in the past six months. From a 52-week high of $2.20, Accent tumbled to 56 cents in March at the peak of market panic. It now trades at $1.78.
Accent owns The Athlete’s Foot, CAT, Merrell, Sketchers, Hype DC and other popular shoe/clothing brands. The company has more than 500 Australian stores.
It’s a no-brainer that shoe demand will rise as more people walk and run in parks during and after COVID-19. I bought new shoes online because of the extra walking (and worn-out soles in my walking shoes!) and am sure others have done the same.
Other trends bode well for Accent. Young people are spending more on lifestyle footwear, such as trendy sneakers. Sadly, some twentysomethings have drained their superannuation and ploughed part of it into $300 sneakers, according to media reports.
An ageing population is another tailwind. Although Accent brands mostly appeal to youngsters, don’t overlook how many older people buy walking shoes at The Athlete’s Foot, or spend hundreds on Merrell hiking shoes.
Accent reported soaring online sales in its latest result and is hurtling into a athleisurewear space through its new Stylerunner store, and discounted sporting-goods brand Pivot, which it believes is a 100-store opportunity.
Accent has an aggressive store-opening plan in 2021 and is not letting COVID-19 get in the way. The company believes a “step change” is underway as it becomes the norm to buy shoes online – once a product that some believed had to be fitted instore.
Like other retailers, Accent will be challenged by an economy in recession, rising youth unemployment and a testy relationship with shopping-centre landlords. It’s hard to see Accent’s bricks-and-mortar shoe shops delivering high double-digit sales growth anytime soon.
Accent is not cheap after recent share-price gains. Still, a forward Price Earnings (PE) ratio of about 16 times at the current price is not excessive given the company’s growth prospects.
Share-price gains will be slower from here, but there’s a lot to like about Accent’s long-term prospects as Australia eventually emerges from the pandemic (even in Victoria).
If any sector will benefit from more people walking, running and spending extra time outdoors, it has to be shoe retailing.
Chart 3: Accent Group
Source: ASX
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 20 October 2020.
