SBJ/March 8 - 14, 1999/No Topic Name

Outlook remains somber for sporting goods sales

Investors praying for a rebound in the stocks of sporting goods companies may not want to hold their breath: Growth in the industry for the second year in a row is expected to be anemic.

Shares of companies like Finish Line Inc. (Nasdaq:FINL), Rawlings Sporting Goods Co. (Nasdaq:RAWL), Nike Inc. (NYSE:NKE) and K2 Inc. (NYSE:KTO) significantly underperformed the stock market last year as consumer appetites for sporting goods shrank. And the outlook is not much better in 1999.

Sales of sports equipment, footwear and apparel rose only 1 percent in 1998 and will grow just 2.4 percent this year to $46.7 billion, the Sporting Goods Manufacturers Association estimates in its annual state of the industry report. By contrast, sales jumped 6.1 percent in 1997 and 6.9 percent in 1996.

The sector had not underperformed U.S. economic growth since 1990, but that sad feat occurred last year and will repeat in 1999, SGMA said.

"Sporting goods manufacturers will face a difficult operating environment, despite a strong U.S. economy," SGMA said. "Consumer spending is expected to gravitate towards computers, electronics and travel expenditures."

That paints a sorry picture for the already battered sports stocks. In the last 52 weeks, Street & Smith's SportsBusiness Journal's Sporting 40 stock index of golf companies lost 67 percent, and sports retail, apparel and footwear companies lost 35 percent.

The news for footwear and golf gets even worse. Of all the markets tracked by SGMA, those two — plus archery products — are the only groups expected to see sales declines in 1999.

After declining last year for the first time since 1992, footwear sales will drop 6 percent in 1999 to $8.2 billion, according to the report. The sale of golf equipment is expected to dip 1 percent to $2.77 billion, after a 1.8 percent gain in 1998.

Some observers see an opportunity for investors, however.

"Company after company is trading at historically low prices," said Tom Ryan, senior partner with Integrated Corporate Relations, a financial consultant to the leisure industry. "But if you are an investor, that is a good time to [invest] when things are trading low."

As for the dismal sales figures, Ryan argued that the poor results were already factored into share prices.

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