Fitness stocks should have strong, positive catalysts heading into 2022. Amid continued signs that fear of the coronavirus is easing, despite the arrival of the omicron variant, many more Americans will likely be ready to go to gyms and yoga studios next year. Providing some evidence that worries about the virus are continuing to ease, the traffic at American casinos and NFL games have, as I noted in a previous column, “come close to pre-pandemic levels.”
Additionally, the Democratic governor of Colorado recently declared that “the end of the medical emergency.” Also interesting is that the CEO of Southwest (NYSE:LUV) felt emboldened enough to declare that “masks don’t add much” when it comes to protecting passengers on an airplane.
And as far as the omicron variant is concerned, Trevor Bedford, of Seattle’s Fred Hutchinson Cancer Research Center, recently was quoted as saying, “it’s more mild, either through existing immunity or through actual reduction of intrinsic severity.”
Meanwhile, I believe that the coronavirus pandemic made many people in the U.S. and elsewhere more fearful of being obese and more aware of the dangers of being overweight. That’s because being obese appears to significantly increase one’s odds of being hospitalized and dying from Covid-19. Additionally, during the pandemic, I think that many Americans consumed much more information about health issues than previously, making many more aware of the dangers of being obese and even overweight in some cases.
Given these points, fitness stocks, particularly those that cater to exercise outside of the home, should do very well in 2022. Consequently, I’m upbeat on:
Fitness Stocks: Lululemon (LULU)
When it comes to clothes for yoga, Lululemon’s brand, I believe, remains unparalleled. And the company’s growth drivers, including international expansion and increased interest among men and women in yoga, continues to enable it to grow impressively for a mature company. Specifically, its revenue grew just over 10% in its fiscal year that ended in January 2021 and just above 20% in its fiscal year that ended in February 2020.
Last quarter, Lululemon’s sales soared 30% year-over-year and 58% compared with 2019, while its comparable sales jumped 27% YOY. The company’s Q3 earnings per share came in at $1.62, up from 96 cents during the same quarter in 2019.
“For the five days spanning Thanksgiving through Cyber Monday, both our digital and brick and mortar channels performed well. E-commerce delivered record breaking days in several key metrics, including sales, traffic and conversion and I’m excited to share that this year. Thanksgiving Day was our highest volume e-commerce day ever,” reported Lululemon CEO Calvin McDonald on Dec. 9.
In the wake of the fitness apparel maker’s results, Camilo Lyon, an analyst at BTIG, wrote that the company is handling its supply chain issues well, maintaining its “full-price selling strategy,” and benefiting from powerful demand, according to Seeking Alpha. The analyst increased the firm’s price target on the shares to $490.
Planet Fitness (PLNT)
In November, the gym franchiser and owner reported that its third-quarter net income, excluding some items, was a strong $22 million. Defying usual seasonal trends, its membership rose slightly in Q3 versus Q2.
The unusual gain “reflects that Americans are waking up to the fact that they need to prioritize their health. Members who are visiting our stores are visiting more frequently than in the past,” said Planet Fitness CEO Chris Rondeau on Nov. 4.
Further demonstrating the company’s health, none of its stores closed permanently during the pandemic. Additionally, Rondeau stated that the members of Generation Z are joining gyms more frequently than older generations. I believe that bodes very well for the long-term outlook of PLNT stock.
For all of 2021, the company on Nov. 4 provided top-line guidance of $570 million to $580 million, versus analysts’ average estimate at the time of $538 million. It expects its full-year earnings per share (EPS) to be 75 cents to 80 cents, versus the mean outlook of 73 cents.
Fitness Stocks: Yeti (YETI)
Yeti “designs, markets, retails, and distributes products for the outdoor and recreation market.” Among its offerings are “drinkware products, such as colsters…. and YETI-branded gear products, such as hats, shirts, bottle openers, and ice substitutes.”
Obviously, its products are designed to support outdoor recreational activities, including hiking, running, and camping.
Yeti appears to be benefiting from both the pro-fitness trend and an increased attachment to the outdoors that I believe many Americans obtained during the pandemic.
In Q3, it reported stronger-than-expected results, with its top line surging 23% YOY and its operating income, excluding certain items, climbing 3% YOY to a strong $74.2 million. Amid higher spending, its gross margin fell by two percentage points YOY, but remained elevated at 57%. In the nine months that ended on Oct. 2, its net sales soared 35% YOY to nearly $968 million.
On Dec. 11, research firm Jefferies included Yeti on its list of companies that have “leverage to easing supply chain conditions or insulation to rising costs.” And after examining malls during Black Friday, Bank of America was upbeat on the company’s outlook for the holiday season and bullish on its new products.
“Overall store traffic was very strong & we believe momentum is being led by new product launches/colorway,” reported the firm, which earlier in the month identified YET stock as its favorite retail name for the holiday season .
After unjustifiably sliding since Yeti’s earnings report, the shares are trading at an attractive forward price-earnings ratio of just over 30.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
