Wellness Ecosystem And Digital Expansion Will Support Strong Long Term Apparel Demand

Catalysts

About Track & Field Co

Track & Field Co is a Brazilian premium active lifestyle brand that sells performance apparel and operates a wellness focused ecosystem of stores, events, digital platforms and food offerings.

What are the underlying business or industry changes driving this perspective?

• Acceleration in consumer focus on wellness and physical activity, supported by Track & Field Co's ecosystem of over 1,100 annual events and 1.1 million TFSports users, deepens brand engagement and may sustain high sellout growth, supporting revenue expansion and royalty income.
• Ongoing store expansion and a structured renovation program, with about 60% of the network already in the new format and more than 40 renovations per year, is driving higher traffic and same store growth. This may lift retail revenue and operating leverage over time.
• Rapid digitization of the business, with digital sales rising from around 3% pre pandemic to above 10% of total and strong omnichannel and social selling penetration, is improving inventory productivity and customer reach. This may support net revenue growth and protect gross margins.
• International rollout starting from Portugal, combined with a multicurrency, multi language Shopify site using local inventory hubs, opens new markets at relatively low incremental investment. This may add a new layer of DTC revenue and diversify earnings geographically.
• Scaling of the broader wellness platform, including TFSports events, TFC food and supplements, and the tfmall marketplace, expands the addressable market around the core brand. This may increase average revenue per customer and, given low incremental fixed costs, may enhance EBITDA margins and earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Track & Field Co's revenue will grow by 17.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.0% today to 16.8% in 3 years time.
• Analysts expect earnings to reach R$273.3 million (and earnings per share of R$1.78) by about December 2028, up from R$139.5 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 18.5x on those 2028 earnings, up from 17.4x today. This future PE is greater than the current PE for the BR Specialty Retail industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.83%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current wellness and healthy lifestyle tailwind could slow or reverse if consumer spending weakens in Brazil or globally, which would reduce traffic to stores and events and could ultimately pressure revenue growth and royalty income.
• The strategy of keeping franchisees and owned stores very well supplied, combined with verticalized production like Thermal Dry, raises structural inventory levels. Any slowdown in demand or product misread could lead to markdowns that hurt gross margins and net earnings over time.
• International expansion using Portugal as a hub and a multicurrency, multi language e commerce platform may face stronger than expected competition and execution challenges, which could limit incremental sales while adding logistical and marketing costs that depress margins.
• The heavy dependence on franchisees, omnichannel and social selling to sustain close to 30% sellout growth may not be repeatable in a more mature network. If store openings or renovations slow or franchise economics weaken, same store sales and overall revenue growth could decelerate significantly.
• TFSports, TFC food and tfmall are still scaling businesses. If they fail to reach sustainable profitability or require higher than planned investment to compete in the broader wellness ecosystem, they could dilute consolidated EBITDA margins and constrain free cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of R$19.4 for Track & Field Co based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be R$1.6 billion, earnings will come to R$273.3 million, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 20.8%.
  
• Given the current share price of R$16.05, the analyst price target of R$19.4 is 17.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.