Asics Stock Catches Fire Along With Its Dad Sneakers

Asics , the 75-year-old Japanese sneaker brand, is having a moment. So are its shares.

The running-shoe maker’s stock price has quadrupled in total return terms over the past two years. Its financial performance is strong: Revenue in its last reported quarter grew 14% from a year earlier while its operating profit surged 53%.

Asics has long been a well-loved brand among the running community. Around a quarter of 54,000 runners who finished the Paris Marathon sported a pair of Asics, including both winners in the men’s and women’s races, according to the company.

In fact, even Nike can trace its roots back to the Japanese company. Nike began its business in the 1960s by importing and distributing shoes from Asics, then known as Onitsuka, in the U.S. Onitsuka Tiger remains a high-end fashion brand within Asics.

Asics has benefited from the Covid-19 pandemic: More people picked up running as a hobby when they had nothing else to do. At the same time, people working from home began giving priority to comfort in their footwear—discovering that lightweight shoes with cushioned soles designed for running are pretty comfortable for walking around in, too. Running-shoe upstarts such as Hoka and On Holding have also seen explosive growth in the past few years. Hoka’s sales in the quarter ended in March surged 34% from a year earlier, pushing shares of its owner , Deckers Outdoor , to record highs.

The performance running shoes segment is Asics’ largest by revenue, and it has tried to maintain a close-knit community of runners. Asics acquired Runkeeper, a popular fitness-tracking app among runners, in 2016. In recent years, it has been acquiring race-registration companies, including Njuko Sas in Europe and Register Now in Australia. Its loyalty program has nearly 15 million members globally.

But outside of runners and Onitsuka Tiger, Asics was perhaps best known for “dad sneakers” —a style of shoes that are picked more for practicality than aesthetics. Lately, however, some old Asics designs have become unlikely fashion symbols. Youngsters have apparently eschewed conventional beauty standards and embraced the uncool: Crocs and Hoka are some other examples of “ugly shoes” that have seen an explosion in popularity.

Asics has done its fair bit, too. Its collaboration with designers from Vivienne Westwood to Cecilie Bahnsen have generated lots of buzz on social media. For example, its redesign of its 2008 Gel-Kayano 14 sneaker with Canadian design studio JJJJound has been a smash hit . The shoe can sell for more than $1,000 on online marketplace StockX. Asics was the fifth most-traded brand on StockX last year, rising from No. 10 the year before. Revenue for the company’s more fashion-minded SportStyle division grew 52% year over year in the last reported quarter.

Even better news for investors is that the company has been more profitable, too. Operating margin in its quarter ended in March was 19.4%, compared with 9.5% two years earlier. Partly that is because the company has shifted its product mix to more premium products. It has also been selling more directly to customers than through wholesalers. Around 64% of its sales were through wholesale in the first quarter, down from 74% three years earlier. E-commerce sales have risen from 13% to 17% of sales.

Asics trades at 34 times forward earnings, according to S&P Global Market Intelligence. That is a similar multiple as Deckers Outdoor but higher than bigger peer Nike, which trades at 25 times. The premium could be justified if Asics could keep growing its sales with better margins.

Asics is sprinting ahead. It still has room to run.

Berkshire began liquidating its big stake in the banking company in mid-July—and has already unloaded about 15% of its interest. The selling has been fairly aggressive and has totaled about $6 billion. (Berkshire still holds 883 million shares, an 11.3% interest worth $35 billion based on its most recent filing on Aug. 30.)

The selling has prompted speculation about when CEO Warren Buffett, who oversees Berkshire’s $300 billion equity portfolio, will stop. The sales have depressed Bank of America stock, which has underperformed peers since Berkshire began its sell program. The stock closed down 0.9% Thursday at $40.14.

It’s possible that Berkshire will stop selling when the stake drops to 700 million shares. Taxes and history would be the reasons why.

Berkshire accumulated its Bank of America stake in two stages—and at vastly different prices. Berkshire’s initial stake came in 2017 , when it swapped $5 billion of Bank of America preferred stock for 700 million shares of common stock via warrants it received as part of the original preferred investment in 2011.

Berkshire got a sweet deal in that 2011 transaction. At the time, Bank of America was looking for a Buffett imprimatur—and the bank’s stock price was weak and under $10 a share.

Berkshire paid about $7 a share for that initial stake of 700 million common shares. The rest of the Berkshire stake, more than 300 million shares, was mostly purchased in 2018 at around $30 a share.

With Bank of America stock currently trading around $40, Berkshire faces a high tax burden from selling shares from the original stake of 700 million shares, given the low cost basis, and a much lighter tax hit from unloading the rest. Berkshire is subject to corporate taxes—an estimated 25% including local taxes—on gains on any sales of stock. The tax bite is stark.

Berkshire might own $2 to $3 a share in taxes on sales of high-cost stock and $8 a share on low-cost stock purchased for $7 a share.

New York tax expert Robert Willens says corporations, like individuals, can specify the particular lots when they sell stock with multiple cost levels.

“If stock is held in the custody of a broker, an adequate identification is made if the taxpayer specifies to the broker having custody of the stock the particular stock to be sold and, within a reasonable time thereafter, confirmation of such specification is set forth in a written document from the broker,” Willens told Barron’s in an email.

He assumes that Berkshire will identify the high-cost Bank of America stock for the recent sales to minimize its tax liability.

If sellers don’t specify, they generally are subject to “first in, first out,” or FIFO, accounting, meaning that the stock bought first would be subject to any tax on gains.

Buffett tends to be tax-averse—and that may prompt him to keep the original stake of 700 million shares. He could also mull any loyalty he may feel toward Bank of America CEO Brian Moynihan , whom Buffett has praised in the past.

Another reason for Berkshire to hold Bank of America is that it’s the company’s only big equity holding among traditional banks after selling shares of U.S. Bancorp , Bank of New York Mellon , JPMorgan Chase , and Wells Fargo in recent years.

Buffett, however, often eliminates stock holdings after he begins selling them down, as he did with the other bank stocks. Berkshire does retain a smaller stake of about $3 billion in Citigroup.

There could be a new filing on sales of Bank of America stock by Berkshire on Thursday evening. It has been three business days since the last one.

Berkshire must file within two business days of any sales of Bank of America stock since it owns more than 10%. The conglomerate will need to get its stake under about 777 million shares, about 100 million below the current level, before it can avoid the two-day filing rule.

It should be said that taxes haven’t deterred Buffett from selling over half of Berkshire’s stake in Apple this year—an estimated $85 billion or more of stock. Barron’s has estimated that Berkshire may owe $15 billion on the bulk of the sales that occurred in the second quarter.

Berkshire now holds 400 million shares of Apple and Barron’s has argued that Buffett may be finished reducing the Apple stake at that round number, which is the same number of shares that Berkshire has held in Coca-Cola for more than two decades.

Buffett may like round numbers—and 700 million could be just the right figure for Bank of America.

Asics Stock Catches Fire Along With Its Dad Sneakers

Shares in the Japanese running-shoe maker have just about quadrupled

When will Berkshire Hathaway stop selling Bank of America stock?