Spring is officially in the air — and perhaps, in your wallet. Amid a trend of more people getting outside during all seasons, outdoor clothing manufacturers are doing well this year.
The healthier lifestyles of millennials who want to spend on outdoor activities and travel is part of a multi-decade trend skewing growth toward lifestyle brands instead of fashion brands, says Susan Anderson, retail apparel analyst with FBR Capital Markets & Co.
As consumers shift their spending toward these lifestyle brands, outdoor-related companies are benefiting from life cycles of products that could span years — a much more attractive opportunity than the 90-day cycle that some segments of the fashion industry face, says Christian Buss, consumer analyst with Credit Suisse.
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In the U.S., spending on activewear and outdoor apparel grew about 8 percent last year, while spending on total apparel was flat, Anderson says. Globally, the apparel industry is growing around 2 to 3 percent, while the lifestyle segment of the industry is enjoying growth of 5 percent or more, Buss says.
Buss says the lifestyle segment will continue to grow faster than the fashion segment of the apparel business, especially given the rise of fast-fashion companies like H&M Hennes & Mauritz, which trades on the Stockholm exchange, and privately held Zara.
After some sluggishness in outdoor-related sales because of a warm winter and general fears about consumer spending and a potential U.S. recession, outdoor stocks have been doing better since January amid more economic optimism, says Laurent Vasilescu, consumer analyst with Macquarie Capital in New York.
While he isn’t anticipating a strong upward movement in stock prices because of an inventory overhang, the next three months could produce buying opportunities for investors if a recession doesn’t materialize and the weather is favorable for outdoor clothing sales, Vasilescu says.
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Against the backdrop of potential growth in the sector, here are four outdoor- and lifestyle-focused apparel stocks and one equipment maker for investors to consider.
VF Corp. (ticker VFC). North Carolina-based VF Corp., owner of outdoor brands The North Face and Timberland, is up 5 percent this year, and its trailing 12-month price-to-earnings ratio is 21. Buss calls North Face the 800-pound gorilla in the outdoor specialty market, noting it is only sold in outdoor shops and mid-tier department stores.
VFC stock is Vasilescu’s top pick in the space because it is one of the best operators in the outdoor clothing industry. The company has sound consumer insight, is good at buying companies and should be able to grow its brands’ revenues, he says.
Columbia Sportswear (COLM). In addition to its namesake brand, which Buss says is the second biggest in the industry, Columbia owns Mountain Hardwear, Sorel, prAna and Montrail. The Oregon-based company, which Buss says has the most product momentum in the sector, is marketing technologies to customers — fabrics that help its wearers stay dry and comfortable — at prices lower than premium products, allowing it to recapture significant margins, Buss says.
Columbia has done a good job in innovation, and its outerwear has been well received, Vasilescu says. COLM stock is up 23 percent this year and has a trailing 12-month P/E ratio of 25.
Under Armour (UA). Maryland-based Under Armour’s expansion into outdoor apparel means more opportunities for revenue and extending its brand, making it more competitive, Vasilescu says. It’s a smart move, as there is only so much compression clothing a company can sell, Anderson says.
UA stock is up 5 percent so far this year and has a lofty trailing 12-month P/E ratio of 79.
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Lululemon Athletica (LULU). This specialty apparel company known for its yoga wear is up 15 percent this year and has a trailing 12-month P/E ratio of 33. The company has been benefiting from the trends lifting the lifestyle sector, Anderson says.
Callaway Golf (ELY). California-based Callaway is a successful turnaround story that stands to benefit from trends in the golf industry, says Casey Alexander, managing director of equity research with Ladenburg Thalmann & Co. The pure-play golf equipment company stands to have to discount less as it gains market share.
Additionally, a warmer-than-normal spring bodes well for the golf business as it extends the time people are buying equipment, prompting earlier reorders from pro shops and other distribution channels like Dick’s Sporting Goods (DKS), he says. ELY stock is down 4 percent so far this year and has a trailing 12-month P/E ratio of 53.
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5 Outdoors Stocks to Warm Your Portfolio originally appeared on usnews.com
