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