Achi news desk-
Athletic apparel brands Nike ( NKE ) and Lululemon ( LULU ) are trading lower on Friday morning as both stocks took a hit despite both companies topping their latest earnings expectations. Bernstein Senior Analyst Aneesha Sherman shares her insight on the athletic wear stocks, especially Lululemon as it continues to capture more market share from luxury retail consumers.
“The year so far, in January [and] continuing into February and early March, the trends have been very weak in the US market, in particular. Management talked about this on the call yesterday, they said there are some challenging consumer dynamics in the US — traffic is flowing, conversion is flowing,” Sherman said. “I think it’s a combination of macro, the middle income consumer is being squeezed right now and that’s the Lulu consumer…”
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Luke Carberry Mogan.
Video Transcript
JARED BLIKRE: I want to shift gears to Lululemon, I have to talk about that too, strong results. That is, a strong reaction at least in the stock market to this. But some of the other analysts are probably worried about the current environments. The fourth quarter is strong. But there are some trends this month so far that seem to be troubling some analysts. I wonder if you can comment on that?
ANESHA SHERMAN: Yes. The trends recently, so the holidays were very strong in December and that’s what drove the strong performance in Q4. But so far in January and continuing into February and early March, the trends have been very weak in the US market in particular. And management talked about this on the call yesterday, they said there are some challenging US consumer dynamics. Traffic is slowing down. Conversion is slowing down.
I think it’s a combination of macro. I mean, the middle income consumers are being squeezed right now and that’s the consumer. But Lulus is also very big in the United States. It is the leading market share holder in women’s clothing. And you can’t go too big for the market once you lead the market. And so some of the slowdown that was late is finally being caught in the stock.
SEAN SMITH: Aneesha, some of that slowdown is a little surprising to you, given the fact that high end users have held up so strongly up to this point in Lulu which hasn’t seen much of that pressure before in truth?
ANESHA SHERMAN: But I think the key in what you’re saying is up to this point. We see a weakness in the high end user. Now where are other premium brands. If you talk about Nordstrom, we talk about Coach, you talk about caring. They see a weakness in that user, the Lulu user. So it’s not just low income pressure anymore. It’s really moving up the income spectrum and hurting that Lulu user in a way that it wasn’t a year ago.
JARED BLIKRE: Aneesha, as we’re between earnings periods right now, any trends or any thoughts on trends that you’ve seen develop over the last quarter, going into the next one, what are the things on your radar at the moment?
ANESHA SHERMAN: We see continued softness in the US market and consumers. Once we get to summer, I think we’ll start an anniversary. Some softness last year so we should see some incremental growth. And especially, for the sportswear brands that see some big sporting events coming up at the Paris Olympics. The euro cup and football should also drive some traction.
So H2 looks more optimistic than H1. H2 order books are stronger than H1. And H2 inventory levels will be cleaner than H1. So it feels like it’s a bit of a year of two halves where we’re still in the thick of H1 weakness. But things will start to look better as we reach the middle of the year.
SEAN SMITH: Aneesha, what do we need to see from Lululemon to spark some of that growth resurgence?
ANESHA SHERMAN: I think we need to see some growth in the men’s business. So this has been a big growth area for them, which was supposed to help offset some of the slowdown in the core women’s business. But men have really underperformed women this year. And Lulu’s CEO talked on the call yesterday about how men are a little more conservative with their purchases as well.
But he also talked about a new innovation they have. They have new men’s pants, new men’s shoes. So if we see that starting work in the men’s business starts to pick up, that may offset some of the weakness in the women’s business as it starts to mature and slow down which will be a positive catalyst for this.
SEAN SMITH: Now our colleague Brad Smith is very excited about the new line of men’s shoes over at Lululemon. OK. Aneesha Sherman, always great talking to you. Thank you very much for joining us here Bernstein senior analyst. Thank you Aneesha.
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