JaguarConsumer Weekly Callouts – April 30 (DECK, DKNG, LTH)
BofA recently hosted a call with the owner of Charm City Run, a Maryland-based specialty run company. The call confirmed the running footwear category remains resilient despite choppiness in the broader retail environment. CCR said growth has been strong year-to-date with large double-digit growth in January and February, followed by March up single digits, and April up 8% month-to-date.
The expert highlighted momentum at Deckers Outdoor (DECK), specifically Hoka, with growth expectations between 20-25% this year. Hoka growth at CCR is expected to be pretty evenly split between units and price. The expert highlighted the fact that Hoka has done a great job riding both a fashion and function wave, something that is rare to see in specialty run. The Clifton 9 launch, released in February, has performed well and is one of CCR’s best-selling shoes.
“For HOKA to maintain the recent pace of growth, our expert discussed how important it will be for the brand to continue hitting on its top selling styles such as the Bondi and Clifton (which make up a little over two thirds of the retailer’s HOKA revenue). Other opportunities for HOKA include track and field, kids (launched last week), and gaining traction in apparel. Outside of maintaining strong brand heat, other key risks include maintaining product quality (namely fit) and keeping a consistent pricing structure.”
DraftKings (DKNG) will be reporting their Q1 earnings after the close on May 4th and hosting a conference call the morning of May 5th. As it pertains to Consumer Callouts, this stock was last mentioned on April 3rd in which Oppenheimer highlighted the company’s Same Game Parlay (See HERE).
Meanwhile, on April 27th, Piper Sandler was out with a preview note saying that Street revenue estimates have already started to move higher for the first quarter and full year, with 2023 EBITDA estimates also improving slightly as well. From their perspective, they suspect investors will be looking for upside to both revenue and EBITDA guidance for the full year. While they view the DKNG story as a growth AND profitability opportunity, they believe continued progress on the profitability front will be more important than outsized revenue growth upside. In terms of specific checks, analyst Matt Farrell said that “DraftKings app downloads grew 132% year-over-year and 24% sequentially during the March 2023 quarter. The company has now exceeded 1 million app downloads for three quarters in a row, a sign of new states launching and likely further engagement from existing states.”
Separately, Bloomberg reported this past Thursday that the company plans to launch a video streaming service for its sponsored podcasts. Expected to be supported by advertising, the free service could potentially debut in the next few weeks. “We think a free video streaming service within the app makes sense for several reasons: 1) Exposure to rapidly growing sports betting content, 2) Monetize existing personalities in a new way, 3) Drive further engagement with users on the app, 4) Maintain competitive positioning, and 5) Build its video streaming technology stack in a low-risk environment.”
Life Time Group Holdings (LTH), which provides health, fitness, and wellness experiences to a community of individual members in the United States and Canada, finished higher on the week by over 15% after reporting Q1 earnings on Tuesday morning. EPS came in at $0.14 vs $0.06 estimate while Revenue came in at $510.85M vs $508.1M estimate. Regarding Q2 Guidance, it said it sees Revenue coming in at $560M – $570M vs $558.69M estimate.
Q1 comp growth came in above expectations as well (+24.6% vs. +22.4% consensus) driven by an increase in average center revenue per membership, of +15% Y/Y (from $580 in Q1 2022 to $667 in Q1 2023). During the quarter, center memberships grew +13.4% Y/Y to 764K (and +39K Q/Q vs. 25K last year), with management pointing to a steady Q/Q decline in attrition rates (which LTH expects to drop below 2019 levels by June).
RBC Capital, in a post-earnings note, said that looking ahead, they see continued membership growth driven by LTH’s pool season (from May through July). Additionally, they expect strategic investments in club programming to drive continuing membership recovery, as well as higher club usage. On dynamic personal training, or DPT (LTH’s second largest EBITDA driver), management pointed to record levels of EBITDA dollars/margin in March, with sequential top-line growth on a monthly basis. Looking ahead, the company expects top-line performance from its personal training business to reach milestones on a monthly basis.
Meanwhile, BofA believes that lower membership churn and higher average monthly dues are being led by better club experience and incremental investments including: (1) Pickleball with unique participants growing 700-800% to over 100K as they believe LTH is the largest provider in the U.S. with approximately 700 courts expected by end of calendar year 2023, (2) Small format group training (from 40 classes/week currently to 100 in CY23), (3) Senior aging programs (ARORA) which are expected to add members in the 55+ age demographic during off-peak periods with unique partnerships offering discounted rates, and (4) Dynamic personal training.
