The FTSE 250-listed retailer’s Sports Direct stores have “virtually no Nike clothing anywhere” said Jonathan Pritchard in a note to clients on Thursday.
“Immediately clear in stores was the almost complete lack of Nike apparel, and lower footwear stock (less noticeable). No such issues for other brands: the stores were still teeming with stock, just not Nike.”
Nike stock items on the Sports Direct website are down 20% since 2017, the analyst noted, and “the stores are duller without Nike product in them”.
But while Pritchard said he initially thought that this might be because stores that were not part of Ashley’s ‘elevation’ plans were being overlooked for Nike allocations at the expense of the newly-refitted outlets, he found this was not the case.
The absence of this giant US sportswear brand could be a “reason to panic”, he said, though management insisted their summer stock buying was conservative and that Back to School demand was strong, implying if that is the case the stock will now rebuild.
“Even Merry Hill, a jewel in Frasers’ crown, has virtually no Nike clothing product either.”
This is definitely a reason to keep a close eye on stores for the next quarter, Pritchard added.
With Nike having refused to send product to Frasers’ chains in the USA, the analyst said a more bearish view might be that “something more fundamental is afoot and that allocations are down because the relationship between the two is going through one of its more ‘challenging’ phases”.
While the US issue is separate to the UK relationship, he noted that there have been moments in the past when the better Nike product was hard to find at SPD UK and is has impacted sales.
“Frasers is evolving but it is still very predominantly a sports retailer and its core cash generators are the non-elevated stores. Clearly it has had a good crisis so far and guidance suggests confidence in the future,” Pritchard acknowledged.
“This Nike thing may be nothing, but it’s worth making sure,” he said, especially with the shares trading for high-teens multiples of forecast earnings.