Leading up to the second quarter of FY19, investment banking firm, Cowen and Co., has identified the athletic brands with the most at stake—and the most upside—in the upcoming earnings season.
Out of the gate, Nike and Lululemon should attract the most interest among investors, according to the firm. Currently sitting at $86, Cowen and Co. maintain a future price target of $100 for Nike stock based on the strength of its Nike Air collection, which makes up the top-three selling styles among men, with women preferring the brand’s Vapormax line.
Lululemon, on the other hand, is predicted to grow consistently over the next five years. Cowen and Co. said its five-year target for the brand implies growth of around $9 to $10 per share through FY23.
“We are raising our price target to $200 on conviction in our slightly above consensus estimates through FY21, given management’s execution and newness across the core and men’s globally,” Cowen said about Lululemon’s outlook in its latest evaluation. “New initiatives, such as loyalty, buy online pick up in store, and international, combined with management confidence in gross margin and SG&A leverage opportunities, support sector best growth and return on invested capital (ROIC).”
Nike’s increased focus on supply chain and digital channel investment should also help it drive growth in the future, Cowen said, helping the brand to achieve faster speed-to-market and increased inventory efficiency. After launching the SNKRS app in 2016, Nike’s mobile channel has grown from $70 million in sales to $750 million in the brand’s latest earnings report. However, the firm said this could cause some headwinds for Foot Locker, which looks to receive less focus from Nike as it continues to pursue digital channels.
Additionally, Nike will launch RFID for all of its footwear and apparel products in the Fall, adding a “key capability” for both the brand and its retail partners. Nike will also be refreshing up to 70 percent of its core product over the next two seasons in order to place a greater focus on its sub-$100 product range.
Under Armour, on the other hand, has worked to regain its image as a premium athletic brand after some suggested that its recent approach to the market had tarnished its image as an upscale option. The brand’s sales skew heavily toward apparel for both sexes, accounting for 70 percent of sales for men and 85 percent for women, but Cowen said its footwear offering has shown signs of acceleration through the HOVR and Project Rock product lines.
Five of Under Armour’s best-selling men’s sneakers are priced $100 or above, along with all three of the best-selling sneakers for women.
“In recent data from the Cowen Consumer Tracker Survey, Under Armour showed gains among upper age and income groups in athletic apparel preference, and saw 18-34-year-old men reach the highest level, 19 percent, since 2017—versus Nike at 43 percent and Adidas at 21 percent,” the firm wrote about Under Armour in June. “The brand saw sneaker gains in the casual category among men aged 18 to 34, a critical cohort in a category that is challenging to break through.”
Yeezy continues to power both Adidas’ brand image and drive the majority of interest in its product, evidenced by the fact that the line still regularly sells for 70 percent higher than its retail price in resale outlets, according to Cowen and Co. However, the firm said Adidas’ Originals collection has made some gains in recent quarters, now counted among its top sellers.
“Questions surrounding the margin structure of Yeezy and Beyonce’s Ivy Park margin structures have emerged recently among investors,” Cowen explained in its Q2 preview. “We note that the Ultra Boost franchise continues to contribute outsized growth and potential with the ‘Feel The Boost’ campaign highlighting the franchise’s new colorways, silhouette and cushioning system.”
Still, it may be Lululemon that has the last laugh, as Cowen noted it is currently perfectly positioned as a “wellness” brand. Consisting of the global sports and sports apparel market, sports adjacent categories and accessories, the firm predicts Lululemon’s “Sweatlife” category could potentially reach a value of $3 trillion on the global stage over the next half-decade.