Sneaker enthusiasts are shifting their allegiance, but Nike's shift toward stable performance footwear is offsetting the losses.
A person wearing blue rolled-up jeans and grey socks steps out in red, burgundy, and orange Asics running shoes. The "dad shoe" trend has been a goldmine for Asics.
Bidding farewell to Nike's Air Jordan, the chunky-soled retro Asics sneakers are now stealing the spotlight.
Nike (NYSE: NKE, up 0.43%) is losing the fashion sneaker race to Japanese brand Asics (TYO: 7936, down 1.42%). For Asics, this victory carries hidden risks; for Nike, it is actually a quiet win.
The rising popularity of running has boosted Asics, a brand long dedicated to the running shoe赛道. Over the past three years, Asics has been the best-performing athletic footwear stock, with its share price more than tripling.
Nike, which long coasted on lifestyle sneakers like the Air Jordan 1, Air Force 1, and Dunk, lagged in the running shoe segment, seeing its stock plunge 62% over the same period, making it the worst performer among major athletic footwear companies.
Now, the industry landscape may be on the verge of a reversal.
Nike's forward price-to-earnings (P/E) ratio has fallen to 23 times, 22% below its historical average. In contrast, Asics' P/E ratio has risen to 26 times, surpassing Nike's for the first time this year.
With market expectations for Nike already low, investors may want to take another look at the company. While short-term growth forecasts are pessimistic, a fundamental turning point for Nike has emerged. The key signal is that its lifestyle sneaker business has shrunk back to a healthy size, while its performance footwear segment is steadily strengthening, which could support a share price recovery.
Since taking over as Nike's CEO two years ago, Elliott Hill has been steering the company's focus back to performance running shoes. This category relies on the consistent demand of athletic activity, making it more stable than trend-driven lifestyle sneakers. The previous management over-invested in lifestyle basketball shoes like the Dunk, but when retro basketball hype cooled and consumer taste shifted toward running shoes, that strategy completely failed.
Citi equity analyst Monique Pollard says investors generally favor brands that focus on performance footwear, as this business forms the brand's core foundation. Jefferies analyst Randall Konik notes that Nike aims to return to its classic revenue structure: 60% from performance categories and 40% from lifestyle sneakers.
Multiple data points indicate the transformation is taking effect. The decline in Nike's transaction volume share on the resale platform StockX signals a healthy contraction in its lifestyle business. According to Citi Research's analysis of StockX data, as of June, Nike's platform transaction share was around 70%, down from 77% at the end of 2023. Meanwhile, prices for the Air Jordan 1 and Air Force 1 on the platform have recovered, suggesting the previous oversupply issue has been resolved.
On the other hand, Nike's performance segment is steadily recovering. The latest earnings call revealed that the running shoe business has posted double-digit growth for five consecutive quarters, adding approximately $1 billion in cumulative new sales over the period.
In the fiscal year ending May 31, Nike's running shoes gained a combined 5 percentage points of market share in Western Europe and North America. Since Hill launched his reforms, consumer Google searches for Nike's Vomero and Pegasus running shoe lines have been trending higher.
A customer browses sneakers in a new Nike store. Nike's running shoe segment has achieved double-digit growth for five consecutive quarters.
The trend for Asics is the opposite. The brand's foundation was performance running, but in recent years, its lifestyle business, including the high-end Onitsuka Tiger line, has grown faster than its performance segment. Asics plans to spin off Onitsuka Tiger in an initial public offering by early 2027.
Asics has quickly gained mainstream attention thanks to the "dad shoe" craze. These shoes, featuring chunky, mesh uppers and retro 2000s designs, have steadily diverted market share from Nike's previously dominant retro basketball sneakers. Nike has also launched its own line of chunky running shoes to compete.
Currently, Asics' performance segment accounts for 55.4% of revenue, down significantly from 64.5% in 2022. Its lifestyle segment has higher profit margins, and this structural shift has boosted overall net profit. Over the past three years, Asics' net profit has grown at a compound annual rate of about 70%.
Asics still has room for growth: it is much smaller than Nike, and the running shoe trend continues.
According to Citi's analysis of StockX data over the past 12 months, the average resale price of Asics sneakers is about 20% above their retail price, higher than all competitors. This indicates that the brand's trendy sneakers are not oversupplied.
However, investors need to be aware of Asics' increasing reliance on trendy, viral products. No brand is immune to the cyclical risk of fashion trends, not even industry giant Nike.
For Nike, a full revenue recovery may still be two or three quarters away. The contraction of its lifestyle business is temporarily weighing on revenue. According to Visible Alpha, Wall Street expects Nike's constant-currency sales to decline for two more consecutive quarters.
But by the time revenue growth returns, the stock price is likely no longer cheap. Investing now, ahead of the curve, may be more opportune.
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