Barron\'s - 09.09.2019

(Kiana) #1

September 9, 2019 BARRON’S 11


Fashion That’s a Stretch


SPANDEX IS EATING THE WORLD. FLEECE, TOO. BUT LET’S


allagreetoholdthelineatsomethingcalledtheath-


leisuresuit.Moreonthatfashionmenaceinamoment.


This past Thursday, yoga tights pioneer Lulu-


lemon Athletica (ticker: LULU) reported blowout


financialresultsthatsentitsstock8%higherthenext


day. Quarterly sales increased 22%. That came atop


25%growthinthequarterayearago.Marginsexpanded.Management


called out high demand for shorts and other garments


among a relatively new customer group: men.


That’s one sign that the so-called athleisure trend—


wearing athletic fashions in casual settings or even at


work—isalastingconsumershift,notafad.Industrywide,


sports apparel sales have grown at a compounded 6% a


year since 2013, 2.5 points faster than other apparel.


Don’tbringthosegunmetal-grayRockyBalboasweats


down from the attic, however; designs have changed.


Lulu’smen’sABCpants,forexample,looklikespiffyjeans


buthavezipperpocketsandaremadefromamoisture-wickingfabric


thecompanycallsWarpstreme.“Iuseitforwork,golf,aquickrun,or


justasaneverydaypant,”ravesonereviewer.Price:$128.Thecompany


alsosellspoloandbutton-downshirtsformen,andskirtsandcoatsfor


women. What the garments generally have in common are high-tech


fabrics and a focus on comfort.


IthoughtIspottedapotentialsportswearpeaklastsummerwhen


a Men’s Health article asked, “Should You Be Wearing an Athleisure


Suit?” It featured fleece business suits made by a couple of fashion-


forwardclothiers.Thesuitsdon’tseemtobecatchingon,mercifully.A


man’ssuitismeanttobeataperedwoolbarrelthathidesbellyfatand


givestheillusionofbroadshoulders.Itisanalternativetofitness,not


ashowcaseforit.Ifathleisuristseverbeginshowinguptoworkinlarge


numberswearingfleecebusinesssuits,Iplantoprotestbyaccessoriz-


ing my wool suits with weightlifting belts and snorkels.


Expectmoregainsforcomfortablefabrics,however.Lastweek,UBS


publishedtheresultsofasurveythatfoundU.S.shoppersplantospend


7% to 9% more on sportswear over the coming year, versus 4% to 6%


moreonotherclothing.Shoppersunder35werethebiggestathleisure


enthusiasts.Andsportswearstillmakesupjust12%ofglobalapparel,


suggesting plenty of room for growth.


UBS reckons that bodes well for Nike (NKE) and VF (VFC), the


makerofNorthFaceclothingandVansshoes,aswellasLululemon.Its


surveysuggeststhatshoppersareeagertobuysportswearbrands,not


justfashions.Thatcouldmakethingsdifficultforotherclothingmakers


looking to up their athleisure games. The three aforementioned stocks


havereturnedacompoundedaverageof26%ayearoverthepastthree


years, double the return of the S&P 500 index. Ralph Lauren (RL),


Hanesbrands (HBI), and PVH (PVH), which sells Calvin Klein gar-


ments, have all lost shareholders money over that stretch.


Clothing-stockinvestorsareleftwithachoicebetweenpriceyathlei-


sure stocks and the cheap but troubled rest. J.P. Morgan’s Matthew


Boss,whohasbeenrightaboutthelongevityoftheathleisuretrendin


general,andtheappealofLuluinparticular,isstillbullish.OnThurs-


day, he raised his price target to $230 a share from $200.


Thenewpriceworksoutto34timeshisestimateforthenextfiscal


year’s earnings per share, and implies 14% more upside


for the shares from here. If that valuation gives pause,


notethatBossalsoraisedhispricetargetforVF,aftera


well-received quarterly report in July, to $108 from $95.


That’s25timeshiscalendar2021earningsestimate,and


suggests a 23% gain from here.


Thereisnotechstockbubble, Barron’s hasargued.


Sure,thetopfiveU.S.companiesbystockmarketvalue


are Microsoft (MSFT), Apple (AAPL), Amazon.com


(AMZN), Alphabet (GOOGL), and Facebook (FB). But those don’t


tradeatludicrouslevelsrelativetotheirmoneymakingpotential.Face-


book,forexample,sellsfor25timesnextyear’sprojectedfreecashflow.


It may be huge, but it’s still growing like a start-up, with revenue ex-


pectedtoincreasebymorethan20%thisyearandeachofthenexttwo,


as more advertising dollars move to digital platforms.


But profits, like prices, can form bubbles of their own. In a report


this past week, strategists at Bank of America Merrill Lynch pointed


outthattechande-commerceprofitsnowmakeup28%ofthetotalfor


thebroaderU.S.stockmarket,alevelassociatedwithmajorpastpeaks.


Atthetopofthehousingbubble,profitsforfinancialsmadeup29%of


themarkettotal.Duringthedot-comstockbubble,techprofitspeaked


at 25% of the total.


This time, it’s difficult to foresee what could cause tech profits to


ebb.BofAseespotentialforan“occupySiliconValley”backlashamong


policymakers,whichcouldmeanincreasedregulationorbreakups.Oth-


erwise,expecttoseetechande-commerceprofitsreachmorethan30%


of the overall pie soon. That will mean index investors will have their


fortunes tied all the more to the same five companies.


Isenseanathleisureconnection.Afterall,BillGates’khakisplayed


aroleinworkplacecasualization,andMarkZuckerberg’shoodiesmight


haveplantedtheseedsfortheathleisuremovement.Ifmycalculations


arecorrect,bythetimetechhits50%ofoverallprofits,businessattire


willconsistofspandexbodysuitsfromLululemon,Nikescootershoes,


and North Face smartphone holsters.


You don’t want to know what that will mean for casual Fridays.


email: jack.hough@barrons.com


Expectmoregrowth


inathleisure,butlook


outiffleecesuitsstroll


intotheoffice.


Streetwise


By Jack Hough

Free download pdf