Fila Stock 'Drops Sharply'... Why Did It Fall After Doing Well?

Concerns Mount Over Downgraded US Subsidiary Earnings Estimates and Slowing Royalty Growth Rates

Photo by Asia Economy DB

[Asia Economy Reporter Geum Bo-ryeong] The stock price of Fila, which had been "doing well," has recently been dropping sharply, drawing attention to the reasons behind this trend.

According to the Korea Exchange on the 17th, Fila Holdings' closing price the previous day was 48,600 KRW, down 1.12% (550 KRW) from the previous session. Compared to the 52-week high of 87,900 KRW reached on May 20 last year, it has fallen by nearly half. Fila Holdings changed its stock name from Fila Korea on the 15th.

Fila Holdings' stock price has continued to decline this year as well. The stock price, which was 48,600 KRW on December 30 last year, has dropped more than 8% since the beginning of the year. This contrasts with the KOSPI, which rose 2.29% from 2,197.67 to 2,248.05 during the same period.

Performance estimates are not bad. According to Ebest Investment & Securities, Fila Holdings' consolidated results for the fourth quarter of last year are expected to show sales of 829.2 billion KRW and operating profit of 105.6 billion KRW, representing increases of 8.9% and 27.8% respectively compared to the previous year.

Despite this, one reason for the continued stock price decline is the downward revision of the U.S. subsidiary's performance estimates for the fourth quarter of last year. More than 80% of U.S. sales occur through low-tier channels such as discount stores, and due to sluggish sales caused by restructuring of retail distributors, inventory increased, leading to weak orders in the fourth quarter. Fila USA's sales and operating profit are estimated to have decreased by 28.3% and 64.8% year-on-year to 135.1 billion KRW and 6.8 billion KRW, respectively. Analyst An Jin-ah of Ebest Investment & Securities commented, "A slowdown in U.S.-bound sales is inevitable until inventory is cleared."

Additionally, concerns about a slowdown in growth in the royalty segment have compounded the situation. The overseas royalty segment, which had shown over 40% high growth each quarter, showed a slowdown in growth compared to the previous year due to the absence of a "next disruptor." The Disruptor is one of Fila's representative sneakers. Royalty sales are expected to increase by 21.5% year-on-year to 21.1 billion KRW.

Brokerages are gradually lowering their target prices for Fila Holdings. Shinhan Financial Investment lowered its target price from 83,000 KRW to 70,000 KRW, NH Investment & Securities from 77,000 KRW to 68,000 KRW, Mirae Asset Daewoo from 77,200 KRW to 70,000 KRW, and Daishin Securities from 96,000 KRW to 82,000 KRW.