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Demand for athletic wear is still strong, fueled by postpandemic lifestyle changes.
Naomi Baker/Getty Images
With consumers starting to pull back in response to concerns about the economy, many retailers are drawing from their defensive playbooks. Sports retailers, however, are still going on the offensive.
Athletics apparel companies have posted strong quarters across the board, boosted by continued demand for athletics apparel.
On Tuesday,
Nike
(ticker: NKE) and
On Holdings
(ONON) posted earnings and revenue that beat expectations and raised their guidance for the rest of the fiscal year. This follows blowout quarters from
Dick’s Sporting Goods
(DKS) and
Academy Sports & Outdoors
(ASO) earlier in March.
Even
Foot Locker
(FL), which has struggled in recent years, did better than expected in its latest quarter. And while the company’s short-term forecast dragged the stock lower this week, analysts are optimistic that
Foot Locker
‘s recently announced rebrand plan will help drive sales and long-term growth.
“We see FL benefiting from the general strength in the athletic footwear and apparel space,” wrote Jefferies analyst Corey Tarlowe in a research note.
Shares of these major athletics retailers reflect ongoing demand, outperforming both the broader market and other retail stocks. Foot Locker stock has risen 4.6% this year. On Holdings stock has surged 61%, Academy Sports 22%, Dick’s 19%, and
Nike
3.2%. Meanwhile, the
S&P 500
has gained 2.5% and the
SPDR S&P Retail
(XRT) exchange-traded fund is up just 1.2%.
The strength of athletic apparel retailers—especially their upbeat guidance—provides a contrast to the cautious tone struck by other retailers, including
Walmart
(WMT),
Home Depot
(HD), and
Target
(TGT).
Postpandemic preferences are playing a big role in supporting these companies’ growth.
“Consumers really have gravitated toward a more casual lifestyle,” said Cristina Fernández, analyst at Telsey Advisory Group.
This is especially true among some of the higher-end brands. Nike, On, and Dick’s are all what Fernández calls “share gainers” within the category, meaning they will continue to grab market share from competitors.
Indeed, among higher-income consumers, time spent on exercise-related activities—such as going on walks or working out—increased from 2019 to 2021, according to a March survey from Stifel’s Think Tank Group. That has translated to higher demand for activewear. Over the course of 2022, consumers were more likely to consider purchasing activewear, shoes, and outdoor gear compared with categories like jeans, workwear, and luxury, the survey found.
It also helps that a lot of these companies have started to see improvements in their inventory levels, which were overburdened last year. With leaner inventory, they have been able to introduce innovative products, such as new sneakers, into the marketplace to drive demand, Fernandez said.
These trends have made analysts more optimistic on the sector. For instance, after Nike’s earnings, Barclay’s upgraded the stock to Overweight from Equal Weight.
The enthusiasm has also bubbled over to
Lululemon Athletica
‘s (LULU) ahead its earnings report next Tuesday, despite the company’s rocky performance in the previous quarter.
“We recently turned bullish on LULU,” wrote Wells Fargo analyst Ike Boruchow on Wednesday. He upgraded the stock to Overweight from Equal Weight in January. “There’s too much negativity priced in today.”
That said, some analysts continue to urge caution, warning that the sector won’t be immune from the slowdown ahead. CFRA’s Zachary Warring reiterated a Sell rating on Nike following its latest earnings, writing that investors are “overly optimistic” considering that consumer wallets will still be under pressure this year.
“The growth is definitely going to slow,” Fernandez acknowledged. But she says she is optimistic the sector will perform better than other retail subsectors, especially those that sell high-ticket items.
After all, if you’re on a budget, what’s more palatable? Springing $70 for new sneakers, or $500 for a new TV?
Write to Sabrina Escobar at sabrina.escobar@barrons.com
