Sales of sportswear in China are moving in step with China’s interests in sports

Sales of sportswear in China are moving in step with China’s interests in sports

Investors sprinting away from China might do well to remember that some pockets of consumption there remain intact. One of these involves the Chinese consumer’s increasing fascination with running

China sportsAccording to a feature in WSJ, The Wall Street Journal, Nike, the best-selling sportswear brand in the country, recently reported its Chinese sales grew 30 % for the three months ending August from the previous year. Anta Sports Products, the largest local player, similarly showed a 24 % year-over-year rise in its sales during the first half of the year, while its smaller peer Xtep International managed 12 %.

This is more than a short-term fad. More Chinese consumers are paying attention to health and sports. The number of marathons and marathon participants has more than doubled between 2011 and 2014, says CLSA. The Chinese Basketball Association’s finals saw 50 % more viewers a game this year than last, reports Morgan Stanley. And China even won the bid to host the 2022 Winter Olympics.

Sportswear sales were similarly booming around the time China hosted the 2008 Summer Olympics, though that quickly turned into a bust for sportswear makers because they over-invested. These companies then spent 2012 and 2013 closing stores. The store count today is 18 % below its 2011 peak for six Hong Kong-listed sportswear firms, says HSBC. Small, unlisted players also exited the market.

Thanks to a combination of fresh demand and disciplined supply, sales are rising again. As is profit. For instance, Xtep says it is upgrading to higher-margin footwear in which consumers can actually run marathons, compared with shoes that earlier only looked sporty. Low oil prices also help, since petrochemicals make up roughly a quarter of raw-material costs, according to Morgan Stanley.

All this bodes well for Hong Kong-listed Anta, which boasted 9.6% of the market last year, according to Euromonitor International. Its shares are up 55 % this year, even defying the recent ups and downs of Chinese stocks.

Anta now trades at 19.6 times of forward earnings, according to S&P Capital IQ. That is still cheaper than the 21.4 times average for a basket of 15 Hong Kong and global sportswear companies. Nike goes for 28.3 times.

Cheaper yet is Xtep, which commands 4.9% of the market and whose shares fetch 12.4 times forward earnings. One concern is rising receivables as Xtep extends temporary credit to distributors opening new retail stores. But the company says this is part of its plan to simplify and better control how its merchandise reaches consumers.

For all the negativity surrounding China in recent months, consumer interest in sportswear is a long-term story. Consumers are showing interest in not just watching sports, but also playing them. Investors can play along.

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