We want to prep you for what could be some perceived 'irrational magnification' of actual facts unfolding today.
FACT
(1) At least three factories in China have burned down during recent earthquake. These are apparel factories, and should not impact footwear directly. Athletic apparel, however, could be impacted.
(2) Athletic Footwear appears fine from a factory standpoint, but timely shipments are being jeopardized by volcano ash and shaky transportation infrastructure.
When I think back over the years of port strikes, earthquakes, and simple product gaffes, I find it amusing how these nuggets race around the market and the stocks move (down) without any real consideration as to what the real impact is. I'm not overly worried about this. Why?
(1) The factories were apparel. This will impact athletic apparel, but lets remember that there are over 10,000 apparel factories globally.
(2) I'd be concerned if this was footwear. Those factories are more like cities that self-sustain the global industry. unlike apparel, there are only about 30 factory groups in the world that make footwear. Furthermore, 86% of our footwear is made in China.
(3) Keep in mind that Nike and Adidas source less than a third of their respective product in China. They're far less exposed than the other brands to any hiccup in China.
Ultimately, the demand is there and the product cycle is there. Could this tweak things by a week here or there, or give an underperforming retailer an excuse to point to? Yeah...I guess.
But overall, our confidence in our athletic call for 2010 remains quite strong. We issued a note in conjunction with Keith about FL yesterday and it being near-term overbought. If these anecdotes push the stock lower, it might be a shot to re-engage for those that have watched from the sidelines.
