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Athletic apparel brands Nike (NKE) and Lululemon (LULU) are falling Friday morning as the two stocks take a hit despite both companies topping their latest earnings expectations. Bernstein Senior Analyst Aneesha Sherman shares her insights on the athletic wear stocks, particularly Lululemon as it continues to capture more market share from luxury retail consumers.
"Year-to-date, 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 was some challenging US consumer dynamics — traffic is flowing, conversion is flowing," Sherman says. "I think it's a combination of macro, the middle-income consumer is getting squeezed right now and that is the Lulu consumer..."
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
JARED BLIKRE: I want to shift gears to Lululemon, got to talk about that as well, strong results. I mean, strong reaction at least in the stock market to about this. But I guess some of the other analysts were worrying about the current environments. Fourth quarter is strong. But there are some trends month to date that seem to be troubling some analysts. I'm wondering if you can comment on that?
ANEESHA SHERMAN: Yeah. The trends recently, so holiday was very strong in December and that's what drove the strong Q4 performance. But year to date 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's some challenging US consumer dynamics. Traffic is slowing. Conversion is slowing.
I think it's a combination of macro. I mean, the middle income consumers getting squeezed right now and that is the consumer. But it's also Lulus getting really big in the US. It is the number one market share holder in women's apparel. And you can't keep outgrowing the market once you're the market leader. And so a little bit of that slowdown that was overdue is finally caught up to the stock.
SEANA SMITH: Aneesha, some of that slowdown a bit surprising to you, given the fact that high end consumer has held up so strong up until this point in Lulu hasn't really seen much of that pressure before?
ANEESHA SHERMAN: But I think the key in what you're saying is up until this point. We are seeing weakness in the high end consumer. Now where other premium brands. If you talk about Nordstrom, we talk about Coach, you talk about caring. They are seeing weakness in that consumer, which is the Lulu consumer. So it is not just low income pressure anymore. It is really creeping up the income spectrum and is hurting that Lulu consumer in a way that it wasn't a year ago.