It used to be that "casual Fridays" and weekend clothing meant
one thing: blue jeans.
But over the last 10 years, trends have been changing and a new
category of casual clothes has been gaining ground against denim,
especially for women.
This trend has many names with some calling it yoga wear, since it
was originally inspired by the emergence of the popularity of yoga.
Some now also call the category athletic wear, or performance wear,
or even "athleisure".
This is a different category than the actual athletic wear that is
made by Nike and Under Armour. They actually expect you to swim,
golf, and run in most of their clothes. They are using
athlete-level high performance fabrics and performance enhancing
The yoga wear trend is all about consumers buying athletic-looking
clothes simply for their fashion style.
People are buying hiking clothes, but they're not going hiking.
They want sweaters that dancers wear to and from the dance studio,
but they haven't taken a dance class since they were 8.
The Yoga Pant That Started it All
The athletic wear trend really started to take off with specialty
retailer lululemon and its popular $100 yoga pant. Originally
intended for doing yoga, women adopted it as casual wear over the
last decade and it became de rigueur for women to wear around town
even when they weren't in the gym or yoga studio.
Suddenly, yoga pants were "in" and acceptable attire. Then came the
explosion of matching jackets and tops for a complete
It's a Big Market
How fast is it growing?
Yoga itself is only growing in the low single digits a year in the
United States but yoga wear clothing and accessories is growing in
the double digits.
Since 2013, sales of jeans have dropped 6% but retail analysts
expect the athletic wear market to rise by almost 50% to a $80
billion to $100 billion market by 2020.
It's important for investors to realize that with a $80 billion to
$100 billion market, athletic wear is plenty big enough to support
several companies in the space. There isn't going to be just one
In the auto sector, there isn't just one automaker making cars but
a dozen that are thriving. It's a similar story with the fast food
burger chains. For forty years there has been plenty of room in
that market for McDonald's, Burger King and Wendy's.
What Companies Are In It?
Athletic wear is a big category. You'll find it as the main brand
in specialty retail stores like lululemon, Title Nine and Athleta.
It is also sold as a sub-brand in retail stores like Pink and Loft.
Additionally, athletic wear is carried in department stores under
brands such as Calvin Klein's Performance Line.
The Best Known Brand
) started the athletic wear revolution and remains the best known
With a $7 billion market cap, it is no longer the small, exclusive
start up of 10 years ago.
Sales for fiscal 2015 are expected in the range of $2.025 billion
to $2.04 billion, up from revenue of just $353 million in fiscal
Rapid growth has caused growing pains. Management turned over after
the company suffered a PR fiasco involving its famous yoga pants
being see-through. Consumers felt let-down by the brand.
More recently, while comparable store sales have rebounded,
lackluster guidance and high inventory is plaguing the company.
As a result, analysts have been cutting full year estimates. It's
currently a Zacks Rank #4 (Sell).
Shares are also not cheap, with a forward P/E of 27.
The good news is that earnings are expected to rebound 21% in
fiscal 2016 as global expansion continues. Analysts are still
bullish on the brand, just not in the short term.
The Gap's Athleta Closing in Fast
lululemon's recent struggles with quality control of its yoga pants
allowed the door to open to new competitors such as the
Athleta is blending athletic wear with fashion, including operating
a "fitness fashion blog" on its web site.
In November, Gap said that Athleta would have 120 US locations by
the end of the year and it continues to add retail stores in
addition to running its own web site.
The problem with knowing exactly how successful Athleta is, is that
Gap doesn't bust out its comparable sales numbers. It only provides
Banana Republic, Old Navy and Gap comps. The only way of guessing
Athleta's strength is by watching the promotions and that has been
Unlike Banana Republic or the Gap brand, Athleta rarely, if ever,
runs a sale for more than 20% off. That's a sign of strength for
the brand. It doesn't have to use promotions to drive sales. That
usually means higher margins.
Athleta is at a slightly lower price point than lululemon, but you
can often find an Athleta and a lululemon store on the same street.
They are targeting similar customers.
The problem with wanting to invest in Athleta is that you also get
the Gap's other brands, which aren't so hot right now. Banana
Republic, in particular, just had its worst month of comparable
sales in years.
Gap is trading with a forward P/E of just 10 but earnings are
expected to decline 13% this year and rise just 2% next year.
Gap is also a Zacks Rank #4 (Sell).
Columbia Growing prAna
Columbia Sportswear Company
) acquired small yoga and lifestyle clothing maker prAna. The bet
on athletic wear appears to be paying off.
In the third quarter, global prAna net sales rose 22% to $34.4
million. That's big growth, but prAna, like Gap's Athleta, is just
a small part of Columbia's overall business.
The Columbia Sportswear brand itself had sales of $609.7 million in
the third quarter, dwarfing prAna.
But if you want prAna, Columbia's other brands aren't a bad bet.
They are operating on full throttle right now.
Columbia has beat-and-raised two quarters in a row which is
impressive given the challenging retail environment.
It is trading with a forward P/E of 18. Analysts expect double
digit earnings growth this year of 16.3% and another 13% next year.
Columbia is a Zacks Rank #3 (Hold).
Department Stores Aren't Out of the Game
The prominence of athletic wear is obvious even in the department
stores such as Macy's and Nordstrom.
Two big players in that space are
G-III Apparel Inc.
), which has been cashing in on the craze through its Calvin Klein
Performance Line, and
) which owns North Face and the lucy lifestyle brand.
Both of these companies have many different brands and focus,
however, including in footwear, accessories and other clothing
lines. Investors don't get a pure-play athletic wear pick with
But G-III Apparel is attractively priced with a forward P/E of
17.4. It is expected to grow earnings by 19.9% this year and 18.8%
It's a Zacks Rank #3 (Hold).
VFC Corporation is more expensive with a forward P/E of 20. Growth
is more anemic as well, with earnings growth of just 3% expected
this year but rebounding to 13% next year.
VFC is currently a Zacks Rank #4 (Sell).
Still in the Beginning of the Build-Out
We are still in the beginning stages of the expansion of the trend
of athletic wear. As a result, some of these brands are
experiencing growing pains which is reflected in the current Zacks
Ranks. Remember, the Zacks Rank is a short-term recommendation of 1
to 3 months.
But it's like McDonald's in the 1970s just as it was beginning to
expand across the country. There was still a lot of growth in its
The athletic wear trend doesn't appear to be going away any time
soon. If nothing else, it is the opposite. It is picking up
Before you know it, instead of casual Fridays where you can wear
jeans, it will be casual Fridays with everyone wearing their yoga
pants and leggings. By the way, there are yoga pants for men too.
There are a lot of ways to invest in this fashion trend. Keep your
It's a big market. There won't be just one winner.
[In full disclosure, the author of this article owns shares of
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