Athleisure has been the biggest trend in retail over the past several years, helping put athletic apparel stocks on a fast track to big-time gains. The rise of internet, social media and photo-sharing apps created an unprecedented surge in consumer self-awareness regarding image, health and fitness. As consumers become more attuned to self-care, they simultaneously lead more active, healthy lifestyles … or at least give off the appearance that they are doing so through Instagram posts. This has likewise led to a surge in athleisure clothing sales, since that is the apparel that best fits this lifestyle.
This isn’t a short-term trend — it’s secular. Consumers are only becoming more connected, and they are consequently becoming more self-aware. Thus, the underlying consumer desire to become healthier and more active will continue to grow. Consumer demand for athleisure clothing will likewise continue to grow over the next several years.
Because of this secular demand tailwind, athletic apparel stocks should broadly continue to run higher for the foreseeable future. If you buy athletic apparel stocks here, you could be sitting on massive gains for the long-term.
Which apparel stocks should be on your shopping list? Let’s take a look at seven athletic apparel stocks to buy, all of which could run much higher over the next few years.
Athletic Apparel Stocks to Buy: Nike (NKE)
At the top of this list is none other than global athletic apparel giant Nike (NYSE:NKE).
Nike has been, is, and projects to remain the undisputed and unrivaled king in the athletic apparel industry. The company dominates in every relevant sports market, from basketball to soccer to baseball. They also dominate on the running front, and have aggressively pivoted into the lifestyle world to be the number one player in athleisure, too.
Broadly speaking, there’s no reason to believe that Nike won’t stop being the top dog any time soon. The company is doing everything right at the current moment. They continue to sign the world’s top athletes. They are investing in technology, pivoting to direct channels, and expanding the women’s business.
All in all, Nike will remain king in the athletic apparel industry for the foreseeable future. So long as that remains true, NKE stock will move higher with the rising athleisure trend.
Foot Locker (FL)
As goes Nike, so goes Foot Locker (NYSE:FL).
For all intents and purposes, Foot Locker stores are basically just Nike stores. Sure, Foot Locker sells product from all the major athletic apparel players, but about 70% of Foot Locker’s merchandise comes from Nike. Thus, when Nike is on fire, that simultaneously means Foot Locker is on fire.
Right now, Nike is on fire. Given the company’s secular demand tailwinds and strong innovation pipeline, Nike projects to remain on fire for the foreseeable future. That means Foot Locker likewise projects to remain on fire for the foreseeable future, too.
Meanwhile, there seems to be some stabilization in the marketplace between direct and wholesale retail channels, and that stabilization should provide a lift to Foot Locker’s numbers. Broadly, then, all the trends are moving in FL’s favor, and that should lead to a FL stock rally.
Before Nike pivoted into the lifestyle market, Adidas (OTCMKTS:ADDYY) did it, and they did it very well.
Adidas leveraged lifestyle celebrity endorsements from celebrities such as Kanye West to grow brand awareness and boost brand equity outside of the core athletic apparel demographic. They also aggressively innovated and launched a plethora of stylish athleisure footwear products tailored to the casual consumer.
These moves worked. Revenue growth at Adidas accelerated higher, and Adidas gained market share. This trend is far from over. Adidas continues to pivot into and grow share on the lifestyle side of this market. As they do, sales and profit growth remain impressively positive, and this growth track continues to lead to big gains in ADDYY stock.
Arguably the most exciting athletic apparel stock is Lululemon (NASDAQ:LULU).
Lululemon started out as a niche women’s yoga apparel brand. They dominated that niche by selling higher-quality product and developing high brand equity. Then, the company leveraged that high brand equity to successfully branch into and grow share in other areas of the women’s athletic apparel market. Now, the company is leveraging its high brand equity to tap into the men’s and international markets.
Overall, then, Lululemon has developed a reputation for a being a high-quality provider of athletic apparel of all sorts. While this company has largely saturated its opportunity in the women’s yoga market, they have just scratched the surface of their potential elsewhere in the athletic apparel space.
As they expand more deeply into those other areas, sales and profit growth will remain robust, and LULU stock will head higher.
Dick’s Sporting Goods (DKS)
One of the more controversial stocks on this list is Dick’s Sporting Goods (NYSE:DKS).
Dick’s has been on the opposite end of a secular shift in the athletic apparel space away from wholesale retail and toward direct retail. Broadly, brands like Nike are putting more product into their own direct channels, and less product into wholesale channels like Dick’s. That has led to lower sales volume and margins at Dick’s, which has ultimately weighed on profits and pushed the stock lower.
Yet, the wholesale retail channel remains very important because of its scale. Quite simply, if Nike stopped shipping product entirely to Dick’s and pivoted it all to direct, they would take a big sales hit, since Dick’s has broad reach and exposure to the U.S. consumer which Nike’s direct channels simply don’t have.
Consequently, Dick’s long term growth outlook is actually stable. It seems this stability is already starting to manifest itself, as Dick’s numbers have meaningfully improved over the past few quarters. So long as this improvement persists, DKS stock should run higher from here.
One of the most undervalued athletic apparel stocks in the market is Skechers (NYSE:SKX).
Wall Street does not like SKX stock. The stock trades at 14-times forward earnings. Both Nike and Lululemon trade at 30-plus forward earnings multiples. To be sure, some of this valuation discrepancy has to do with growth. Nike and Lululemon are growing faster than Skechers. But, not that much faster to warrant such a big valuation discrepancy.
Instead, investors are concerned that as competition ramps up in the athletic apparel category, Skechers simply won’t be able to keep up. That thesis seems flawed. Skechers isn’t as cool as a Nike or an Adidas. But, the company offers quality athletic sneakers at reasonable prices, and in so doing, they dominate the mid-price athletic sneaker market.
This market isn’t going away anytime soon, because consumers will always be attracted to reasonable prices. Meanwhile, Nike and Adidas can’t really pivot aggressively into this market because cutting prices would dilute brand equity and hurt their premium products. Thus, Skechers is in a sweet spot, and the relative undervaluation in SKX stock simply makes no sense.
The last stock on this list is more an outdoor apparel company than it is an athletic apparel company, but it nonetheless benefits from the same secular demand tailwinds.
Yeti (NYSE:YETI) is an outdoors consumer products brand that is rapidly expanding share in the $600 billion-plus outdoors sports market in the U.S. That market is growing anywhere between 5% and 10% per year, supported by a consumer shift from valuing products to valuing experiences (which broadly means more outdoor activities for consumers, and more outdoor products sales). This is a secular shift, so this market will continue to grow at a healthy rate for the foreseeable future.
Within that industry, YETI is a small (less than $1 billion in revenues projected for 2019), but important (people need coolers and drinkware) and stable player (YETI is top dog in the cooler niche). Further, YETI is launching new products to extend beyond its niche, pushing hard on the international front, and rapidly expanding its DTC business. All those initiatives imply healthy market share expansion over the next several years.
Because of such, Yeti projects as a healthy revenue and profit grower over the next few years. That growth will push YETI stock higher.
As of this writing, Luke Lango was long NKE, FL, LULU, SKX and YETI.