- The Athleisure craze shows no sign of ending.
- Nike and Under Armour are pricey but the best way to play the craze.
- Lululemon and Skechers are other players in the game.
Athleisure is the wearing of athletic leisure wear in place of other types of clothes. It started with replacing shoes with sneakers, but now extends to wearing branded, stretchy fabrics while doing just about everything.
It should be noted that this is in contrast to wearing denim where the leading player is VF Corp. (NYSE:VFC), whose brands include Lee, Timberland and North Face. VFC shares are up almost 6% in the last year.
Nike, which turned Michael Jordan into a style icon a quarter century ago, has seen its stock jump 40% in the last year, 10% just in the last week, as it has continually beaten expectations with revenues rising 10% year on year and the ability to drive over 10% of that revenue to the bottom line.
For the quarter ending in August, reported last week, Nike earned $1.18 billion, $1.34/share, on revenues of $8.4 billion. Net income was up 23% over a year earlier while sales were up 5%, which let it raise the dividend to 28 cents/share. This made the Nike stock the star of Friday’s trade, up 8.84% or $10.15.
Under Armour Growth Better Than Nike
Under Armour, which has been cloning the Nike strategy but with fewer athletic endorsers, has done even better, up over 48% over the last year. The company’s revenues are rising faster, 32% last year, but only 6.7% of that came to the net income line as the tax man took a big chunk.
Under Armour numbers are also more seasonal than those of Nike, with the bulk of the profit earned during the holiday quarter. For the three months ending in June it had after-tax income of just $14.77 million, 7 cents per share, on revenue of $783 million. That top-line number was 28% higher than a year earlier.
Nike is an entrepreneurial company still under the control of chairman Phil Knight. Under Armour is equally entrepreneurial, under founder Kevin Plank. Plank, 42, has an enormous reputation on Wall Street, and the prices now being paid for Under Armour stock – over seven times sales and 113 times earnings – are the kinds of numbers you normally see at a fast-growing tech company.
So there are two key questions to answer if you want to consider an investment. Does the athleisure trend have legs, and are Knight and Plank the horses to play in order to profit?
Because there are other options:
Athleisure Competition Heats Up
Lululemon (NASDAQ:LULU), a yoga wear company, is growing at 13%/year, it has complete vertical integration since it only sells through its own stores, and as a leader in yoga wear it has a niche among the growing number of women who are key athleisure adherents.
Skechers (NYSE:SKX), a shoe company, has been growing almost as fast as Under Armour over the last few years, 28%, and its profitability has been rising over the last few years. It brought 6% of its nearly $2.4 billion in revenue to the bottom line last year, and for the last two quarters margins have accelerated, to nearly 10% in the last quarter.
Sprint On With Athleisure Stocks
Personally I find fashion hard, even when it relates to my own feet. My Brooks shoes are owned by BRK.A (NYSE:BRK.A). I find risks in fashion from newcomers like Tony Burch.
But athleisure is not going away. As Silicon Valley executives appear on TV in hoodies and jeans , the trend is moving east, pulling down old-line mens’ clothiers like Men's Wearhouse (NYSE:MW), down 33% just since July.
If you are ready for your new track-suited overlords, Nike, Under Armour and Lululemon may all be worth more than a speculative glance.