Thanks to Lululemon Athletica Inc. (LULU.O), women who have never seen a “downward dog” position are now wearing yoga pants to malls, the supermarket, even cocktail parties. For 20 years, LULU has led the transition of yoga clothing from the exercise studio to everyday outerwear. Then the Juicy Couture brand made sweat pants chic. Let’s take a look at the activewear category, now dubbed “athleisure” in the fashion world.
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LULU and Juicy are now facing competition from Britain’s Sweaty Betty brand, which will be introducing a men’s collection this spring.
Giving LULU a workout
StarMine shows that LULU’s current earnings per share mean estimate is 73 cents and almost every analyst covering the stock has raised EPS projections. These upward revisions may not be over: the StarMine Analyst Revision Model (ARM) indicates that analysts are likely to continue raising their earnings forecasts as the quarter progresses. LULU has a StarMine ARM score of 95, which places it in the top decile of all U.S. companies ranked by this measure of change. The higher a company’s ARM, the more top-ranked analysts have been increasing their earnings forecasts and the greater the likelihood that they will continue to do so.
If higher earnings are good, then sustainable earnings growth is better yet — and that’s what a StarMine analysis of Lululemon’s latest financial statements suggests. Indeed, the company scores a 99 out of a possible 100 on the StarMine Earnings Quality Model (EQ), which calculates how much of a company’s earnings is derived from sustainable sources. This metric puts LULU above 99% of all companies in North America.
As a group, U.S. Textiles & Apparel stocks are up by 2.4% over 30 days. LULU’s current forward 12-month P/E ratio stands at 31.5, compared to the median five-year value of 33.1.But watch out, StarMine calculates that the market is pricing LULU’s shares as if the company will generate 15.7% compound annual earnings growth over the next five years. Looking at the StarMine Intrinsic Value model, we see that LULU would need 7.5% compound growth for the next five years to be fairly valued at $34.20 vs. the market’s $65.98.
Finally, in addition to showing solid credit; The StarMine SmartRatios Credit Risk model gives Lululemon a score of 99 out of 100, one of the highest possible score, with Coverage and Leverage scores of 100, and 94, respectively.
Fashion Week stars
LULU’s popularity has inspired more designers to enter the category. Last season, Gap’s Athleta showed its first activewear runway show during New York Fashion Week. This season, Athleta announced it will collaborate with Derek Lam to launch a new collection in September, right around spring Fashion Week.
Highly rated StarMine analysts are optimistic about Athleta’s brand strengthening. As a result, other retailers are trying to copy Gap’s model by opening new divisions. For example: Urban Outfitters’ Without Walls, and Lou& Grey from Loft. And with the growing e-commerce online movement, more retailers like Net-a-Porter are including upscale brands like Fendi and Jason Wu.
Other big name designers that have sent activewear down the runway include Carolina Herrera, Alexander Wang, Balenciaga, Norma Kamali, Betsey Johnson, and Monique Lhuillier. Tory Burch will launch her sport line this spring. Investors are keeping a close eye on Ralph Lauren Corp. (RL.N) as it continues to plan global expansion of Polo Sport to take advantage of the increased demand for activewear.
Not only is it Fashion Week in New York, but the NBA presented All-Star weekend in the city, and designers are striking while the iron is still hot by sending activewear down the runway.
Source: Eikon
Adidas’ Yeezy Boost
Adidas AG (ADSGn.DE) stock has taken a beating last year and shareholders have become unhappy with management. North America is its second biggest revenue generating segment and in an effort to improve this market, Adidas presented its new collaboration with Kanye West at a secret location during New York Fashion Week.
In its last earnings conference call, Adidas Group CEO Herbert Hainer said that “North America is a top priority for us going forward. We invest in people, we invest in designers, in design studios.” (Source: StreetEvents, Q3 2014 Adidas AG Earnings Conference Call). This is one reason the company increased its marketing expenditures to invest in Kanye West Yeezy Boost sneakers which sold out at $350 per pair.
Investors might want to check out the activewear category, since the NPD Group reports that this $35.1 billion industry is outperforming the apparel market as a whole. The desire for a healthy lifestyle is a trend worth watching, as is the desire to look like one is pursuing a healthy lifestyle. In a lot of situations, comfort and style reign – and activewear fits the bill.
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