Athleticwear Picks Up Pace In Fashion, Boosts Stocks

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All glammed up with flashy colors and trendy styles, athleticwear is building muscle in the fashion world. And brands on the IBD 50 list of top stocks are among the companies seeing shapely results.

Yoga pants, leggings, sweatshirts, tank tops -- name the workout attire and it has made its way from the gym to Main Street.

Athleticwear has taken center stage as a go-to casual wardrobe for women and men to sport most anywhere, anytime, as power brands such asNike ( NKE ),Under Armour ( UA ), Adidas andLululemon ( LULU ) ratchet up the style quotient. These companies are driving the trend by coming out with fashionable products that make people look good wearing them, says Brian Sozzi, CEO of Belus Capital Advisors.

"Five years ago athletic apparel was boring to the eye and unflattering to the body," he said. "Now, you walk into aDick's Sporting Goods ( DKS ) store and you see an assortment of colorful, improved quality apparel from Nike and Under Armour. And they're bringing new merchandise into the stores more regularly."

What Suits Sales

Hot pink and bright orange shirts, jackets, hoodies and leggings for women and girls are among the back-to-school items from Nike and Under Armour featured on athletic gear retailerFinish Line's ( FINL ) website. Wild prints such as Nike's tiger stripe and spotted leopard pants are also in the lineup.

The newest crop of athleticwear has a more flattering fit, adds Sozzi. Shirts and pants are more form-fitting vs. baggy designs of years past.

"One of the only trends to really have any traction this year is active wear," Marshal Cohen, chief industry analyst for the NPD Group, told IBD in an email interview.

"Active has been hot for a while, but just not this widespread. Active is everywhere," he said.

Activewear is outrunning the apparel industry. U.S. sales of activewear for men, women and children rose 13% in 2013 from a year earlier compared with just a 2% gain for total apparel, not including activewear, according to the NPD Group. Activewear was up 7% from July 2013 to June 2014 to $33.6 billion vs. about a 1% rise in total apparel sales to $172.6 billion.

The trend has helped fuel growth at companies such as Under Armour and Nike.

Under Armour, an IBD 50 stock, has been on a long-running winning streak with double-digit sales gains. The stock's pace has picked up a bit to over 30% in each of the past three quarters from the 20%-plus range the prior seven quarters. Earnings have been up by at least double-digit percentages in all but one of the past five quarters.

Nike has also seen its sales growth pace step up recently to a double-digit rate the past two quarters, up from single-digit gains the prior five quarters.

The activewear trend started in footwear, says Cohen, with bright-colored athletic shoes being worn for all occasions.

"And then the apparel side kicked in gear," he added. "So while apparel is the hot spot right now, footwear is right there too."

The trend has helped retailers such as athletic footwear store operatorFoot Locker (FL) as well as department stores that sell activewear, such asMacy's (M).

Foot Locker, an IBD 50 stock, has logged at least double-digit earnings growth in all but one of the last 15 quarters. And analysts polled by Thomson Reuters see it maintaining that pace with a 17% rise when it reports second-quarter results on Friday before the bell.

Finish Line operates licensed athletic footwear shops in Macy's stores. In addition, Macy's operates activewear departments that sell various brands. On Macy's second-quarter conference call last week, Chief Financial Officer Karen Hoguet said "active is on fire," when discussing Macy's "strong" start to the back-to-school season.

Back-To-School Business

Analysts expect athleticwear to be the hot trend for the back-to-school shopping season, which kicked off late last month.

"No question, active will dominate for boys and even make its mark for girls for (back-to-school)," said Cohen.

It also tends to be a category that is less "seasonal," he adds, and can be worn throughout the school year, not just in spring or fall.

Sozzi concurs that for back-to-school the "uniform of choice for kids is athleticwear."

He says traditional teen apparel retailers such asAeropostale (ARO),Abercrombie & Fitch (ANF) andAmerican Eagle Outfitters (AEO) are "extremely weak" in the athleticwear segment.

So for back-to-school, he says, the teen customer will gravitate toward name brands such as Nike and Under Armour. Sozzi says department stores such as Macy's and value-priced retail operators such asKohl's (KSS) andJ.C. Penney (JCP) have improved their assortments of athleticwear and have devoted more space to the catalog over the past two quarters because there has been so much demand.

Piper Jaffray analyst Sean Naughton adds that recently there has been a strong "dual-gender" fashion trend in athletic apparel and footwear for leisure.

According to his firm's survey work, denim has been down-trending among teenagers since the fall of 2010 and he believes that athletic apparel has benefited.

"Consumers have not rounded out their closet with athletic apparel, which is important for the trend to continue," he said.

For example, in 2011 his firm's survey work indicated that 75% of young women owned more than five pairs of denim, which could provide further legs to the "Athleisure theme," he added.

How hot is athleticwear as a fashion trend? Naughton answers by citing the Spring 2014 Piper Jaffray Taking Stock With Teens survey.

When asked what their favorite apparel brand was, the Nike brand captured 23% of the vote, up from only 5% in 2009, says Naughton, who is one of the survey's authors.

"Nike continues to connect very well with the youth culture," said Naughton.

Basketball shoes are very popular right now, and they are driving some of the trends in athletic footwear, he said.

Nike products such as its Jordan brand and collections from marquee athletes such as basketball stars LeBron James, Kevin Durant and Kobe Bryant "should remain strong", he added.

Under Armour, Nike Grow

Nike is also faring well on the apparel side. In its fourth quarter, reported in June, Nike apparel sales in North America were up 9% from a year earlier excluding the impact of foreign exchange. For all of fiscal 2014, they were up 10%.

Under Armour saw sales of apparel, its biggest growth driver, climb 35% during its second quarter to $420 million.

"In general, we continue to see success where we drive newness and excitement for the consumer, including innovation stories like ArmourVent (a keep-cool mesh fabric) as well as enhanced design elements through products such as Alter Ego (superhero-logo shirts) and graphic tees," Under Armour Chief Financial Officer Brad Dickerson said on the company's second-quarter conference call.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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