Gap Set to Introduce Men’s Athleisure Line, Challenge Lululemon


Gap, Inc. is launching a premium men’s high-performance activewear line, dubbed Hill City, to rival their successful women’s athleisure label Athleta. Combining “highly technical fabrications, performance and style” the Hill City line is designed to be versatile, enabling men to go “from a hike to a dinner out” (presumably with shower in between) without a wardrobe change. Hill City will debut in October as an online retailer, though +/- 50 select Athleta stores will carry select pieces.

Howie Long-Short: Gap acquired Athleta back in ’08 (it was still a catalogue company at that point) for $150 million. While GPS doesn’t break out Athleta’s financials, the company is “progressing well towards well against our $1 billion sales objective”. With Gap brand sales on the decline (and Banana Republic struggling), it’s not surprising to see the retailer look to what has been working – CEO Art Peck said Athleta has been “highly accretive” to GPS earnings – and look to duplicate it’s success (editor note: Old Navy has also been a bright spot); particularly when you consider the category remains the “biggest and fastest growing” within men’s apparel. GPS shares are down +/- 14% since company reported (on August 24th) that Gap brand comparable store sales declined (-5% YoY) even more than Wall Street analysts had anticipated (-2.3% YoY) during Q2 ’18.

While activewear as a sector isn’t growing as fast as it once had, according to NPD Group sales continue to rise faster than the overall fashion industry. Activewear sales rose +2% YoY (on the back of female athleisure) to $48 billion in 2017, accounting for 22% of all retail apparel sales.

Fan Marino: Lululemon remains the most dominant player in the athleisure space. LULU shares jumped 13% (to $154.93) after it was reported that Q2 ‘18 gross profits climbed +33% YoY (to $396.2 million), on net revenue that rose +25% YoY (to $723.5 million), as gross margins increase by 360 basis points (to 54.8%) YoY. With North American expansion planned (adding 40 more stores by the end of ’18), the continued development of the Asian market (sales rose +50% YoY, see: Japan, Korea) and growing e-commerce sales (+65%, 24.6% of total sales), LULU is nearly certain to remain “in a league of its own” through the end of the calendar year. Shares have nearly doubled (+97%) since the start of ’18, they’ll open at $156.99 later this morning.

Back in March, we wrote Outdoor Voices was on its way to becoming “the next Lululemon.” Looking for a couple of other companies that could become household names within the athleisure space? Try RYU (CVE: RYU, trades OTC: RYPPF) and The Upside (NYSE: LUK is a stakeholder), both have found niches within the space and opened retail stores in NYC in ’18.

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Fashion Labels Take Activewear Market Share, Activewear Brands Now Reside on 5th Ave

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Activewear brands and the retailers who sell their products have had a difficult start to 2018, as sales were “essentially flat between February and April.” NPD Group senior sports industry advisor Matt Powell attributes the struggles to “the proliferation of fashion brands emulating performance wear” (think: Moncler’s Grenoble collection, BIT: MONC); including high fashion labels like Isabel Marant that are now launching activewear lines. It’s not just the athleticwear labels (think: Under Armour – UAA, Columbia – COLM) that are hurting from the industry crossover though, athletic specialty/sporting goods stores are also struggling as “department stores now capture more activewear sales than the true sports channels.” Activewear is the fashion industry’s fastest growing category, expected to grow 6-7% in ’18; compared with 2-3% for the balance of the fashion and footwear industry.

Howie Long-Short: One company that has not been negatively impacted by the trend is Lululemon Athletica. LULU posted “astonishing” Q1 ’18 results, before increasing its full year financial forecast. Net income grew +141% YoY (to $75.2 million) on revenue that rose +25% YoY (to $649.7 million), with e-commerce growth (+62% YoY), new customer acquisition (+28% YoY, 30% of which were men) and a significant rise in gross margin (from 49.4% to 53.1%) highlighting the quarter. Shares popped 16% (to $122.19) following the June 1st report; they’re up 55% YTD and 135% over the last 12 months despite the February resignation of CEO Laurent Potdevin (workplace misconduct) and other public missteps (think: see-through tights). Adidas (ADDYY), Champion (HBI) and Patagonia were also all strong performers within the activewear category during the first quarter.

Fan Marino: While fashion brands are working to take activewear market share, activewear companies are taking up residency on 5thAvenue (NYC) alongside high-fashion retailers. Why? As Powell explains, “to be next to some of the most prestigious names in the industry really elevates the prestige of the athletic brands.” Adidas, Asics (TYO: 7936) and The North Face (VFC) already have stores open on 5th Avenue, Nike (NKE) and Under Armour have signed leases on space and Puma just announced it’ll be opening a 24,000 SF retail store on the street.

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Lululemon Athletica CEO Out Amidst Multiple Claims of Misconduct

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Lululemon Athletica, Inc. CEO Laurent Potdevin has resigned effective immediately, with the yoga wear brand saying the former executive “fell short of … standards of conduct”. LULU has not cited specific examples of Potdevin’s misconduct, but reports indicate the unprofessional behavior (unrelated to corporate finances or operations) was not limited to a single incident; though, no legal settlements have been paid and no criminal charges are pending. Executive Chairman Glenn Murphy will take over Potdevin’s role, until the board decides on a long-term replacement. LULU shares fell 3% (to $75) after hours on Monday.

Howie Long-Short: Potdevin was successful as CEO; helping the company through supply chain issues, growing its men’s business and building a presence within China, so this can’t be considered good news (though founder Chip Wilson may dispute that). Lululemon shares gained 21% in 2017 and have been trading just a few dollars off the all-time high ($81.92). The company did say Potdevin’s absence will not impact its 2018 earnings projections.

Fan Marino: LULU reported its “highest traffic” and “largest sales” ever on Black Friday and Cyber Monday, so January’s news that the company was raising sales forecasts (from mid-single digit to high-single digit growth YOY) for Q4 ’17; wasn’t exactly a surprise. Expectations are the company will post quarterly net revenue between $905-$915 million, equating to 15-16% YOY growth, when 4th quarter results are released on March 27th.

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WSJ: Just 7 Ways to Publicly Invest in Sports, JWS: Not the Case


The WSJ published a recent story asserting there are few ways to directly invest in sports, a notion we dispute. The article deemed just 7 publicly traded equities to be sports-related and based their conclusion, that fans are better off watching and playing sports than investing in them, on the performance of 2 exchange traded funds; one of which (FANZ) has beat the S&P since its July ’17 inception, which would seem to counter to their argument. The article cites Matt Hougan, the CEO of Inside ETFs, and his belief that most of the economic value within sports (ownership and player contracts) “comes in private transactions”, to support the author’s thesis; but fails to pay consideration to the revenue streams that support those contracts (and generate ownership profits). It’s worth noting that JohnWallStreet follows over 100 sports-related equities.

Howie Long-Short: Sports teams generate revenue from 4 sources; broadcast rights, ticket sales, sponsorships and merchandising. Several publicly traded equities use a similar business model; Churchill Downs (CHDN), International Speedway (ISCA), Dover Motorsports (DVD) and Speedway Motorsports (TRK), and thus should also be included on the list. Others, like Acushnet Holdings Corp. (GOLF) and Callaway Golf Company (ELY), are undeniably directly tied to sports; and no one would claim your basket was unfocused if companies like Nike (NKE), Lululemon (LULU) and Fitbit (FIT) were to be included. Oh, and don’t forget Activision Blizzard’s (ATVI) new esports league (Overwatch); their inaugural season starts today.

Fan Marino: The story names the New York Knicks, New York Rangers (MSG), Atlanta Braves (BATRK), Manchester United (MANU) and Borussia Dortmund (BORUF) as the teams you can purchase equity in. The Toronto Blue Jays, Toronto Maple Leafs (RCI), Juventus F.C. (JVTSF), A.S. Roma (ASRAF) and SS Lazio (BIT: SSL) are also all publicly traded.

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Amazon Takes on The Sports World; 25 Companies That Will Be Affected

Amazon has been credited with killing everything from book stores to electronics retailers since its 1994 launch. Now, with a market cap +/- $570 billion and $16 billion in annual operating cash flow, the company is taking aim at the sports world. In our final newsletter of 2017, we look at 4 of AMZN’s recent initiatives and the 25 companies most likely to be affected in 2018.

Amazon Expands Brand Registry Program, Now Includes Nike

In June, Nike (NKE) agreed to join Amazon’s brand registry program; seeking to curb counterfeiting and non-licensed selling within the e-commerce marketplace. The partnership also supports the athletic apparel and sneaker brand’s initiative to boost revenue through a shift to digital and DTC sales, relying less on struggling retailers. Competitors Adidas (ADDYY) and Under Armour (UAA) already have direct-sales deals in place with AMZN.

Names to Watch: FINL, DKS, FL, HIBB, BGFV; LON: SPD, LON: JD

Howie Long-Short: Athletic apparel and sneaker retailers count on NKE (70% of FL business comes from NKE); but NKE launched its “Consumer Direct Offense” strategy in fiscal Q1 ’18, increasing e-commerce business 19% YOY. Mediocre retailers beware, the company is maintaining just a few dozen wholesale relationships as it looks to increase its e-commerce business (from 15% of revenue to 30% over the next 5 years).

Amazon Entering Private-Label Sportswear Business

In October, Amazon (AMZN) announced it was entering the private-label sportswear business and working with the same Taiwanese suppliers, Makalot Industrial Co. (TPE: 1477) and Eclat Textile Co. (TPE: 1476), that some of the world’s biggest athletic brands use. Elcat’s involvement is particularly noteworthy as the company manufactures high-performance sportswear for Nike (NKE), Lululemon Athletica (LULU) and Under Armour (UAA).

Names to Watch: NKE, UAA, ADDYY, LULU; TPE: 1476, TPE: 1477

Howie Long-ShortAMZN wants to be in the private-label clothing business because it pushes retailers to sell inventory on the e-commerce site. Should a retailer choose not to, AMZN will simply produce the item themselves and compete directly against the brand.

The Pursuit of Exclusive Broadcast Rights

In September, the company hired Brian Potter to lead its sports video business. In November, Jim DeLorenzo, head of sports, Amazon Video, said the company was pleased with viewership numbers, engagement and the reliability/quality of the cloud-based streaming service during its season long experiment streaming Thursday Night Football (10 games, $50 million); though it is too early to say if the company will pursue future exclusive sports broadcasting rights. The company has since done deals that will deliver Prime subscribers 37 ATP tour events (previously owned by SKYAY), the AVP Beach Volleyball tour each of the next 3 summers and docu-series on Michigan Football.


Howie Long-Short: NFL Senior VP, Digital Media, Vishal Shah recently said “we continue to think some of the best days are ahead [for traditional TV partners] despite some shifts in the media landscape.” That doesn’t sound like linear television will be excluded in the next round of negotiations, but the NFL is encouraging interested media companies to bid on both television and streaming rights for the leagues TNF package; leaving the door ajar for the tech giants to receive exclusivity for the first time.

Twitch: The Future of Game Broadcasts?

Twitch, the live-streaming platform most often associated with video games, has agreed to stream up to 6 live G-League (Gatorade sponsored NBA minor league) games. Broadcasts will include interactive overlays (viewers can click a team name/logo for player, team, game and season stats), a loyalty program to reward viewer engagement during broadcasts (i.e. custom emotes for group chat) and the ability for users to provide their own live commentary (over the game feed) via the Twitch co-streaming feature.


Fan Marino: NBA Commissioner Adam Silver has gone on record stating he’d like to see changes in the way sports broadcasts are presented; pointing out the lack of live stats and chatter surrounding the broadcast, that gamers have become accustomed to. I’m not ready to give up Mike Breen, Marv Albert and Ian Eagle for Towelliee; but it’s worth watching to see if anyone else is.

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Lululemon Counting on Growth of Men’s Line to Reach $4 Billion by ‘20

Lululemon (LULU) introduced its first ever marketing campaign targeting male clientele in fiscal Q3; growing annual men’s sales 21% YOY, during the quarter. The athleisure company has publicly stated it is targeting $4 billion in annual revenue by 2020; projecting $1 billion in sales from the men’s division. During the Q3 earnings call, CEO Laurent Potdevin said the company currently sits “almost halfway there”; remaining on track to accomplish both goals, on time.

Howie Long-Short: LULU reported Q3 revenue grew 14% YOY (its 2nd straight quarter of growth) to $619 million; with gross profit rising 16% to $322 million. E-Commerce (+25% YOY) and international (i.e. China) growth helped drive the increases. It’s worth noting that the company set records for sales on both Black Friday and Cyber Monday, boding well for Q4 financials. Company shares are up 6% since the earnings release and 11% YTD.

Fan Marino: Kevin Watley, a consultant with GlobalData Retail, said that LULU’s ability to resist excessive discounting has strengthened the company bottom line (52% profit margin). Profit margins may be strong, but it’s corporate policy that is preventing discounted sales; not the company’s ability to restrain itself in a promotional market. The LULU website currently has 160 items on sale, but all are final sale; meaning no returns or exchanges. Who is buying a $69 t-shirt that can’t be exchanged if it doesn’t fit properly?

Lululemon CEO sees huge potential in men’s apparel, says ‘almost halfway’ to lofty sales goals

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In supplemental documents distributed at Nike’s (NKE) investor day, the brand provided a game plan for how they plan to cash in on the young, affluent, active female demographic; “pants studios” and “sneaker boutiques”. On November 1st, NKE will open the first of 5,000 “pants studios”; dedicated space within their stores to showcase pants, organized by sport or activity. The company has been pouring R&D dollars into the female demographic, even vowing to rethink athleisure pants beyond tights; and for good reason, women’s athleisure is a $7 billion industry that they see growing.

Howie Long-Short: Lululemon (LULU) has competitors coming from all directions. Amazon (AMZN) is creating private label sportswear lines using LULU manufacturers and now NKE is introducing 5,000 “pants studios”. While LULU CEO Laurent Potdevin can argue AMZN is playing in a “very different playground” (I would debate that), there is no doubt NKE is going after LULU’s target clientele. As NKE President Trevor Edwards stated earlier this week, “our growth in our women’s business is outpacing our men’s business, and it will continue to do so”. Unfortunately for LULU shareholders, that growth looks like it will come at your expense.

Fan Marino: Nike’s revamped strategy for women’s sneaker sales (i.e. sneaker boutiques), focuses on the premium and sub-$100 categories. The company has reported sales are up 30-50%, at stores running the “sneaker boutique” pilot program.

Nike reportedly set to open yoga pant studios in stores, sending Lululemon shares lower

Editor Note: The summary for this story was written by our friends at The Water Coolest. Check out for the latest market news and professional advice.

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Jefferies investment bank analyst Randal Konik is predicting the newly released Steph Curry 4 “will become the #1 sneaker in basketball this year”, leading to a rebound of the Under Armour (UAA) brand (down 44% YTD). After years of rapid growth, the UAA reported its second straight losing quarter in August; pointing to a sluggish signature market and weak consumer reception to the Curry 3 as reasons for the decline. UAA is taking a different marketing approach with the Curry 4; releasing the shoe in phases, while limiting distribution and colorways to create consumer demand.

Howie Long-Short: Konik points to the Curry 4 “championship pack” selling for 80-100% above retail, as evidence of a pending turnaround. I’m not so sure. Just a handful of stores received them and those that did had just a couple hundred for sale. You can create buzz selling in limited quantities like that, but you won’t generate meaningful revenues that way (see: Adidas/Yeezy); and unlike ADDYY, UAA doesn’t have a Stan Smith, NMD or Superstar to drive their resurgence. Konik’s most valid argument for UAA upside? LULU having a higher market cap than UAA “makes no sense”.

Fan Marino: The “championship pack” included: 2 pairs of Curry shoes, 2 pairs of Stance socks, a golf divot tool and a signed letter from Curry. The pack retailed for $400. The Curry 4 is selling for $130. Steiner Sports sells Steph Curry autographed photos for $299. Fans lucky enough to land a pack would seem to have gotten their money’s worth.

Stephen Curry’s new shoe will spark an Under Armour turnaround: Analyst


Amazon (AMZN) is entering the private-label sportswear business and working with the same Taiwanese suppliers, Makalot Industrial Co. (TPE: 1477) and Eclat Textile Co. (TPE: 1476), that some of the world’s biggest athletic brands use. Elcat’s involvement is particularly noteworthy as the company manufactures high-performance sportswear for Nike (NKE), Lululemon Athletica (LULU) and Under Armour (UAA). Both manufacturers have begun to produce limited quantities for AMZN, as the company looks to test the market before entering in to long-term contracts.

Howie Long-Short: AMZN wants to be in the private-label clothing business because it pushes retailers to sell inventory on the e-commerce site. Should a retailer choose not to, AMZN will simply produce the product themselves and compete directly against the brand. That’s not good news for retailers (LULU shares dropped 4.9%, UAA down 2.8% since Friday’s announcement), but it does offer manufacturers a viable new revenue stream. Eclat expects its new e-commerce clients to generate up to 12% of company revenues in 2018, with the potential for that percentage to grow significantly.

Fan Marino: There are no shortage of media stories pointing to the end of the athleisure trend, so hearing that AMZN is first looking to get into the space is big news for those of us who live in joggers. Bezos isn’t known to be late to the party, so I’m betting this concept of dressing comfortably isn’t going out of style anytime soon.

Amazon Is Getting Into Sportswear


Lululemon (LULU) CEO Laurent Potdevin remains bullish on the future of brick and mortar retail, saying “people don’t want to be stuck on their phone” and those that seek “mindful lifestyles continue to crave human connections”. The company employs 10,000 “educators” to develop those connections within in their 421 stores and an additional 2,500 “brand ambassadors” worldwide to foster human engagement. Potdevin points out that Lululemon should not be grouped with other struggling athleisure apparel companies, as the brand does not sell footwear and controls its fleet of stores (competitors tend to be wholesale companies).

Howie Long-Short: Yoga’s popularity in China is growing and Lululemon is cashing in with sales in the country up 350% YOY. LULU, who has an exclusive partnership with Tmall (BABA), China’s largest B2C e-commerce platform, saw a 100%+ increase in traffic and higher conversion rates lead to a 175% YOY increase in sales on the platform. Rapid growth within the Asian market puts the company’s $4 billion revenue target for 2020 in sight.

Fan Marino: Speaking of footwear, NBA MVP Russell Westbrook is the new face of Jordan Brand (NKE). Westbrook signed a 10-year deal that will make him the highest paid endorser in the history of the company. Westbrook will also get his own signature shoe line. While financial terms of the deal were not released, Westbrook shouldn’t be short on cash. He recently signed the richest deal in NBA history, a 5 year $205 million extension with Oklahoma City.

Lululemon CEO: Retail isn’t dead because people ‘crave human connections’