If you’re a fashionista who loves wearing yoga pants to the office or looks forward to matching sneakers to a shirt and tie, Nike has some new clothes for you. The athletic apparel retailer's new emphasis on activewear, particularly for women, is considered crucial to its expansion beyond the locker room.
Nike Inc. (NYSE: NKE) is leading the charge to capitalize on the world’s newfound love of “athleisure” gear. Investors are optimistic about what that could mean for the Oregon-based company’s long-term prospects as it prepares to release figures Thursday for its first fiscal quarter of 2016.
Consumer interest in fashionable activewear has skyrocketed globally in recent years, particularly among women. Brands like Nike, Under Armour and Lululemon are locked in a heated battle to market and sell fashion-forward apparel that can be worn to the office as easily as to the gym. American consumers spent $2 billion more on apparel, footwear and accessories in 2014 than in the previous year, largely due to increased sales in the activewear segment, according to NPD Group, a market research firm.
Analysts are divided on whether athleisure is more than a passing trend and whether Nike’s gains in the market would come at the expense of competitors like Under Armour and Lululemon. But one thing is certain: Athleisure is “absolutely” a factor in the company’s own outlook, especially given Nike’s massive share of the marketplace, said Paul Swinand, an equity analyst at Morningstar Investment Services in Chicago.
“In general, it’s a trend toward both athletic lifestyles and athletic looks,” Swinand said. “As the ‘majors’ add those category niches in their product lines, they’re probably expanding the market more than stealing market share.”
Think of "athleisure" as the nexus of fashion and function: coffee-shop customers clad in leggings and mall shoppers in formfitting pullover sweatshirts. Celebrities on the leading edge of the trend include Kanye West, Justin Bieber and Beyoncé -- who has a clothing line that prominently features activewear. Each of them has taken athleisure from a fringe fashion phenomenon to a full-fledged movement.
With $30 billion in revenue for its 2015 fiscal year and share prices at an all-time high, continued expansion of athleisure offerings are seen as crucial to Nike’s long-term growth, especially given the company’s stated goal of increased sales to women. Nike executives hope to reach $7 billion in women’s apparel sales by 2017 -- a 40 percent increase from current levels.
The company’s latest athleisure apparel hit shelves just a few months after Nike reported a 16 percent increase in women’s apparel sales for its 2015 fiscal year. That trend, along with the approximately 70 million women Nike now counts as part of its online community, bodes well for the company’s outlook in 2016. Still, the brand's sales among women remain surprisingly low, said Laurent Vasilescu, an analyst at Macquarie Securities.
"It's baffling, for the sheer size of the company, that only 20 percent of revenues come from women," Vasilescu said. "There's 50 percent of the customer base out there that are women. There's a lot of opportunity."
Activewear’s effect on global sports apparel market cannot be overstated. A recent Wall Street Journal report called athleisure a “phenomenon” and “the biggest trend to hit fashion since the skinny jean,” having made the jump from retail outlets to the runway. Nike paid close attention to the trend for years and reaped the rewards thanks in large part to sales of its Flyknit sneaker, a runaway success after a decade in development, according to CNBC.
Nike unveiled the next incarnation of its athleisure efforts earlier this month with the release of “Therma-Sphere Max,” which comes in a $185 men’s hoodie, $120 men’s pant and a $155 women’s “training vest.” Aside from its stylish athleisure design, the new gear comes equipped with “AeroReact” technology, capable of altering its own fit based on whether the wearer is sweating.
The expansion of Nike’s athleisure brand coincides with the projected success of the company’s efforts overseas. Futures sales have been particularly strong in China, where the country’s growing middle class is increasingly eager to buy Nike sneakers. Nike's successful marketing efforts in the region, which included the introduction of premium products in its running and basketball sectors, have proved valuable as China increasingly embraces the two sports.
While athleisure is sure to play a vital role in Nike's long-term plans, Vasilescu gave it minor significance in the Q1 performance. More important, he said, is whether Nike raises guidance on earnings and gross margins. Falling oil prices have made it easier for companies to acquire important petroleum-based materials, like polyester and nylon.
"One of the key inputs in this industry is oil," Vasilescu said. "We estimate about 30 percent of their [cost of goods] are oil-based inputs."
Though Nike has traditionally functioned largely as a wholesaler, the company’s increased dedication to direct-to-consumer sales, such as the online marketplace, have also stoked optimism. Nike’s direct-to-consumer sales were up 29 percent to $6.6 billion in fiscal 2015. Continued growth of the company’s DTC sales is “starting to become meaningful,” Swinard said.
“If the Internet business is growing 20, 30-plus percent, eventually people are going to pay more and more attention to it,” he added.
Nike was projected to report earnings of $1.031 billon, with earnings per share set at $1.18, on $8.214 billion in revenue, according to analysts polled by Thompson Reuters. The Oregon-based apparel company earned a net profit of $962 million, with earnings per share of $1.09, on $7.982 billion in revenue at this time last year. The first fiscal quarter of 2014 was particularly strong for Nike due to its connection with that year’s FIFA World Cup.
The company will formally announce its earnings for the first quarter fiscal 2016 Thursday at about 4:45 p.m. EDT, after the stock market closes, according to a press release. Nike executives will hold a conference call to discuss the report at 5 p.m. EDT that day.