Asics, the 75-year-old Japanese sneaker brand, is having a moment. So are its shares.
The running shoe maker's stock price has quadrupled over the past two years. Its financial performance is strong: revenue in its last reported quarter grew 14% from a year earlier while its operating profit surged 53%.
Asics has long been a well-loved brand among the running community. Around a quarter of 54,000 runners who finished the Paris Marathon sported a pair of Asics, including both winners in the men's and women's races, according to the company.
In fact, even Nike can trace its roots back to the Japanese company. Nike began its business in the 1960s by importing and distributing shoes from Asics, then known as Onitsuka, in the U.S. Onitsuka Tiger remains a high-end fashion brand within Asics.
Asics has benefited from the Covid-19 pandemic: more people picked up running as a hobby when they had nothing else to do. At the same time, people working from home began giving priority to comfort in their footwear -- discovering that lightweight shoes with cushioned soles designed for running are pretty comfortable for walking around in too. Running-shoe upstarts like Hoka and On Holding have also seen explosive growth in the past few years. Hoka's sales in quarter ended March surged 34% from a year earlier, pushing shares of its owner, Deckers Outdoor, to record highs.
The performance running shoes segment is Asics' largest by revenue, and it has tried to maintain a close-knit community of runners. Asics acquired Runkeeper -- a popular fitness-tracking app among runners -- in 2016. In recent years, it has been acquiring race-registration companies, including Njuko Sas in Europe and Register Now in Australia. Its loyalty program has nearly 15 million members globally.
But outside of runners and Onitsuka Tiger, Asics was perhaps best known for "dad sneakers" -- a style of shoes that are picked more for practicality than aesthetics. Lately, however, some old Asics designs have become unlikely fashion symbols. Youngsters have apparently eschewed conventional beauty standards and embraced the uncool: Crocs and Hoka are some other examples of "ugly shoes" that have seen an explosion in popularity.
Asics has done its fair bit too. Its collaboration with designers from Vivienne Westwood to Cecilie Bahnsen have generated lots of buzz on social media. For example, its redesign of its 2008 Gel-Kayano 14 sneaker with Canadian design studio JJJJound has been a smash hit. The shoe can sell for more than $1,000 on online marketplace StockX. Asics was the fifth most-traded brand on StockX last year, rising from No. 10 the year before. Revenue for the company's more fashion-minded SportStyle division grew 52% year-over-year in the last reported quarter.
Even better news for investors is that the company has been more profitable too. Operating margin in its quarter ended March was 19.4%, compared with 9.5% two years earlier. Partly that is because the company has shifted its product mix to more premium products. It has also been selling more directly to customers than through wholesalers. Around 64% of its sales were through wholesale in the first quarter, down from 74% three years earlier. E-commerce sales have risen from 13% to 17% of sales.
Asics trades at 34 times forward earnings, according to S&P Global Market Intelligence. That is a similar multiple as Deckers Outdoor, but higher than bigger peer Nike, which trades at 25 times. The premium could be justified if Asics could keep growing its sales with better margins.
Asics is sprinting ahead. It still has room to run.
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