RTN - 02/02/2025
A healthy dose of US Economic Data; Hoka and TNF earnings ; Some interesting reads on the future of the consumer and retail; A BIG thank you; And Black Canyon 100K
What is up party people! Happy Sunday and welcome back for another addition of RTN. I want to start by simply saying WOW. I've experienced more love and support in the past couple of weeks than I ever could have imagined. Thanks to a couple of fantastic creators in the running space (Ken Seals with The Ultra Minute, Matt Trappe with A Matter of Brand, Mario Fraioli with the morning shakeout, and Lutze over at SecondNature) for sharing my work, I have more people following along than I thought I'd see in even the first couple of years!! INSANE!
But with that has also come the realization that what I'm posting could be taken out of context and that does potentially put my corporate career at risk. One that I do care about deeply (contrary to popular belief). Luckily, I have some amazing people in my corner and connections to leverage and the advice thus far has been RUN THEM NUMBERS! In full transparency, I should probably hold off on posting until one more box has been checked but I'm more than likely taking next week off and wanted to keep the momentum going. On that note, I'll be taking a week off as we're flying to Arizona for my wife to run Black Canyon 100K. If you're going to be around, let me know! I'd love to connect, go for a run, or even put a face to a name.
This week we have a lot of macro news to hit on. GDP and Consumer Confidence are the big ones. I'm late to the game on the inflation numbers so we'll hit that in the next issue. We finish up the macro taking a peek at some forward-looking retail sales predictions and where the US footwear market ended up in 2024. Earnings this week included Deckers (Hoka) and VF Corp (The North Face), as well as some interesting preliminary numbers on Saucony's performance in China. And lastly. I quickly highlight some interesting reads including a Circana report on consumers seeking value, a fun read on brand loyalty, and we wrap it up NRFs top 25 retail trends of 2025. With that, let’s get to it!
Macro
2.5% ... Annual GDP numbers finally landed for the US and the red, white, and blue grew at a rate of 2.5% this past year. Q4 came in at 2.3%, which is slightly below the 2.5% expectation and down from 3.0% and 3.1% the past two quarters. The big story here seems to be that consumers are still spending. The two biggest contributors to the 2.3% Q4 growth were Consumer spending on services and on goods which rose at their fastest rate since early 2023. I'll leave GDP at that given there's a lot of other macro/economic news to sift through this week (that are more interesting).
$5.2 Trillion ... Bain & Co.'s retail team released their thoughts on 2025 retail sales recently and they're modeling out a strong +4% increase over 2024, with e-commerce sales growing +10% and brick & mortar sales growing only +2%. They go into detail on how there are a lot of potential headwinds in the coming year (i.e., consumer behavior, economic volatility, trade complexities, etc.) but what's fascinating to me is their Top 5 resolutions for retailers in 2025.
Earn your spot atop consumers’ shopping lists
Win hearts to win wallets
Modernize your supply chain for resilience
Reimagine cost efficiency with tech and AI
Turbocharge beyond-trade profits
To me, the top two go hand in hand and I think in the short-term you'll see companies who grasp these concepts succeed, whereas those the latter three will set up companies for the long haul. 'Earning your spot atop the customers' shopping lists' builds on a topic from the last newsletter in that consumer behavior is shifting and price-value is becoming even more important. How do running companies convince consumers that their $180 running shoe is something they need to purchase when grocery bills seem to go up faster than Elon's disapproval rating. Which leads right into 'win hearts to win wallets'. Bain's point here is around loyalty programs and the data that supports how much value they add to a company through more frequent purchases, spending more, and having a higher share of wallet. As a consumer I can't say I've ever really bought into loyalty programs, unless it's The Feed and they're giving me a free $20 every 3-months to spend on something I'm going to buy regardless. (No, I'm not sponsored but I would 100% say yes..). Ok, enough rambling. Both articles linked here do a better job providing more context and points-of-view on how these predictions come to life.
$89.2 Billion ... That's the size of the US footwear market in 2024. This is relevant because I touched on this last week in relation to the South Korean article I highlighted where I said running was ~11% of the total US footwear market. Well, I must have been looking at different subset of data (I should always cite my sources) because Circana is saying that running came in at $7.4B, which is only ~8.3% of the total market in the US. Regardless of how wrong I am, it's cool to see the running market grew +6% from 2023 while the total market was flat (meaning I was even more incorrect if I was looking at 2023 data...). The growth in running was driven by a mix into higher priced product, and because I don't have access to the data I can't parse out where unit growth stacked up but it's safe to say this was closer to flat than what drove the +6%. This to me means a couple of things. 1 - Consumers are still buying running and even choosing to buy running over other categories. Lifestyle/athleisure was only slightly up, fashion was down, but running took gold. 2 - "Value and Versatility". Now, I won't pat myself on the back too much, but I've already mentioned that the consumer behavior and sentiment trends are going to force companies to focus on value and products that are "versatile". I'm confident Circana read my newsletter and then forgot to give me credit... Arrogance aside, consumers are paying up for running and my hypothesis is that the higher priced products are also flashier shoes that consumers feel they can run in while also wear out and about. They can buy one pair of shoes for $200, versus two pairs for $150. There are some very recent examples of running companies releasing a running shoe that's being called a "lifestyle" proposition, but I'm not here to name names. So, running is growing. It's growing because consumers are buying higher priced shoes. We all got next to nothing raises the past couple of years. And the prices of all the other things we buy have gone through the roof. You tell me how you interpret all of that.
-5.4 ... A quick hit here because I mentioned it last week but Consumer Confidence for December came out this past week and fell -5.4 points, which is roughly 2 points worse than economists expected. Because we've spent a fair amount of time talking on this topic I won't go to deep, but it's safe to assume consumers are nervous about the future. Not only is there economic uncertainty but there's also societal uncertainty, and when both futures look bleak, we will see confidence wane at a faster clip.
Running Industry
23.7% ... Deckers released their Q3 earnings this week, and for the runner that means some insight into how Hoka is doing, and for the 16-year-old caramel frapuccino drinking female that means some insight into how Ugg is doing. The parent company, Deckers, saw a rather successful quarter with revenues up +17.1%, beating shareholder consensus by 5.4%, with Hoka growing a strong +23.7%. This top-line performance also flowed through to the bottom line with EPS (earnings per share) improving +$0.48 from a year ago and beating consensus by +$0.41. Deckers also raised it's full-year guidance to +15% where they had previously communicated growth of +12%. Now here's where it gets crazy. Shares landed -20% to close the market Friday and it's largely due to how investors are viewing the Hoka brand.
This Footwear News article does a very good job of explaining what I would try to explain, so I'll try to summarize their POV with some RTN flavor. When you do the math to where the first three quarters landed and where Hoka is projected to land Q4, it comes out to +32% growth in the first half and only +18% in the second half. That's a pretty steep drop off that has spooked some investors as it might be signaling a "slow down". And while that might be true, Hoka is comping a very strong +34% growth in Q4 of last year that skews the story a little. My thoughts here are that a couple of buy-side analysts (essentially asset managers who own the stock) are being critical of management and have large growth aspirations for the brand. Given that the stock was up ~47% this year, it could have been priced at a level that required Hoka to grow over 20% annually through 2026 and they're likely going to come in at or below that number. On the flip side, Hoka has been sort of the spearhead to the running "moment" and as other brands get their act together and build momentum, it could eat into Hoka's astronomical growth rates. As it relates to the point earlier on versatility, Hoka is well positioned here as their shoes are largely viewed as performance AND lifestyle models. As an insurance policy Hoka, is getting into the wedding and funeral game with the hopes of their speed loafer unlocking their next chapter of growth.
60% ... While not an earnings preview necessarily, some light was shown on Saucony and how their China business is performing. For some context, Saucony is owned by Wolverine Worldwide, who also owns the likes of Merrell, Chaco, and Sweaty Beatty and operates for brands like Cat and Harley-Davidson footwear. Where it gets a little more confusing is that a company called Xtep International is in a joint venture with Wolverine Worldwide where they operate under licensing and royalty agreements for the Merrell and Saucony brands in China and in January of 2024 this jumped to 100% ownership. Xtep released their Full Year 2024 earnings last week and did break out how impactful Saucony was, stating that the brand grew +50% in Q4 and +60% for the Full-Year. All this to say, the base was low, and with 2024 being the first full year with 100% ownership of the rights in China they were primed to "show" large growth numbers. However, in sifting through their interim report, they are calling out "double-digit-same-store growth and robust online sales performance of their Professional Sports business" (Merrell and Saucony)".
While this is just a small insight into how Saucony is performing, it could be an early indicator of how that brand shows up in Wolverine's Q4 earnings release here in a couple of weeks. As a reminder, when they released Q3 earnings in November, Wolverine raised their Full Year guidance (slightly) touting the strength of Saucony and the product coming down the pipeline. We'll get a chance to double click-into these guys here in a couple of weeks!
$2.8 Billion ... VF Corp. also released earnings this past week with revenue landing at $2.8B, up +2% from last year and beating guidance and consensus. This will be another topic I won't dive too deep because the focus of their earnings in recent quarters has largely been on their turnaround efforts and how they're managing the rebalancing of their portfolio. As it relates to running, The North Face continues to be the shining star of this group, where in Q3 they saw revenue +5% and are seeing some strong momentum coming off their Skims collab. VF CEO Bracken Darrell is extremely bullish on TNF stating, "The North Face’s core underlying brand history is oversized relative to the size of this business, in my opinion, and I love that position. It means growth is ahead." They continue to make noise in the trail scene with the help of their robust athlete portfolio, led by the one and only Katie Schide as well as their ability to offer pinnacle performance innovation across the many types of trail running that exist. From off-trail athletes to those hoping carbon plates actually help on the trails (don’t we all), they have something for everyone who's looking improve their performance. And, as someone who hikes, backpacks, and dabbles in mountaineering, I've always enjoyed what they do across all mountain sports as well as their ability to tell stories.
Interesting Reads
I'll drop a couple of interesting reads for the week with minimal notes. I feel you have a lot to read already and adding my perspective to the below more than likely devalues what the author wrote in the first place. So, here you go!
SGB highlights a Circana report on consumers continuing to seek value and showing up big during promotional moments. We'll see how the trend continues through Memorial Day sales, BTS, and into the next holiday season.
While I said I didn't think loyalty matters as much anymore, the global research consultancy Brand Keys released an interesting study on the top brands in customer loyalty and what that means for purchasing behavior, sales, etc.. One of my go-to's, Footwear News does an amazing job summarizing for us.
NRF released their 25 predictions for the retail industry in 2025. While most all of the top 10 are tech or AI related, I found 21 to be fascinating on the US wellness market growing ~10% each year. They linked to a McKinsey study that is a two-for-one for you guys and maybe we'll highlight the second article in a coming issue.
And with that, the numbers have been ran. We're moving into earnings season so we'll have the opportunity to start diving into how some companies are finishing up their fiscal 2024s and where they're guiding investors for 2025. Like noted, It will probably be two weeks before RTN hits the track again but PLEASE hit me up if you're going to be down at Black Canyon this next weekend and lets connect. As always, shine your light!
Much Love .
Derrick
[All views are my own and not that of my employer, Nike, Inc.]