Shoes are padded. Pants are baggier. Waistbands are stretchy. Americans have increasingly opted for comfier clothing since the pandemic kept them mostly at home for months. Even with offices reopening and more live events moving back in-person, Wall Street analysts are seeing comfort’s staying power in native athleisure companies like Lululemon and traditional clothing brands like Gap . “Although the term athleisure took hold well before the pandemic, I think Covid supercharged our willingness to tolerate, or our tolerance for, comfortable attire in the workplace,” said Simeon Siegel, a managing director at BMO Capital Markets. That “has officially opened up the market for products that were otherwise limited to lounging around the house.” Though studies on the topic are hard to come by, anecdotal evidence points to a continued love for casual and comfortable items exiting the pandemic. Companies and industry experts alike have taken notice as retailers continue vying for sales while the broader economic backdrop grows increasingly uncertain. Wall Street analysts have been following running shoemakers On Holding and Deckers with particular interest. Up on a Cloud On, known for its line of Cloud running shoes , has more than doubled its share value this year. But it still trades cheaper than where it finished 2021 — its first year as a public company — due to the strength of 2022’s selloff. KeyBanc analyst Ashley Owens initiated coverage of the stock at overweight. She noted how the pandemic “blurred the line” between work and home, with consumers still choosing “business comfort” in the new post-pandemic environment. “ONON has a multiyear growth story sitting in front of it with several levers of opportunity (international, new products, distribution expansion) due to best-in-class innovation as well as increasing brand awareness, in our view,” she said in a July 24 note to clients. ON LULU,NKE YTD mountain On, Lululemon and Nike in 2023 Elsewhere, she said the bank was standing firm in its overweight rating for Lululemon and its sector weight rating for Nike , which also operate in the athleisure space. She noted demand for Lululemon is “still robust,” while warning Nike could be affected by the macro environment. The two stocks have diverged this year: Lululemon shares have advanced nearly 20%, while Nike shares have slid 7%. BMO’s Siegel also noted traditional retailers can win sales in the comfort space, as the silos between types of clothing and what brands are known for become less apparent. TD Cowen’s John Kernan also initiated coverage of On at outperform last month, saying the company can establish market share in performance and lifestyle. Larger athletic brands, he said, appear more focused in other places such as streetwear and basketball. But others aren’t as optimistic. Baird analyst Jonathan Komp downgraded shares to neutral in early April, noting the company can take a hit if consumer spending is pressured. Even more bearish: Bank of America’s David Roux reiterated his underperform rating around the same time. While some analysts have noted word-of-mouth as a main driver of sales, he said it may not be enough. “ON is a highly innovative athletic footwear brand well positioned to gain share,” Roux said in a note to clients. “We are however s[k]eptical on its ambitious long-term growth and margin targets – as we see execution risk to achieving scale (via category expansion, brand recognition) and inadequate levels of marketing investment.” The majority of Wall Street views the stock favorably, with more than 70% of analysts rating it a buy or strong buy, according to Refinitiv. But the average analyst sees shares losing about 13% over the next year, indicating a pullback from the recent rally. Hoka as a growth engine For some analysts, Hoka has become a crown jewel of Deckers, which is also the parent of brands such as Ugg and Teva. The stock has advanced every year since 2016. Deckers’ shares are up 39% in 2023. “We view the HOKA brand as the primary growth engine which is still in the early innings of growth,” Raymond James analyst Rick Patel wrote in a note initiating coverage of the stock at outperform last month. DECK 5Y mountain Deckers shares over the last half decade Analysts see more upside ahead. Nearly 78% of analysts rate the stock a buy, with the average price target implying shares could gain another 10% in the next year, according to Refinitiv. To be sure, there are reasons to take pause around the running shoe craze. Patel, for example, cautioned that the field is becoming increasingly crowded. And UBS analyst Jay Sole said last month that Deckers is overcrowded as a long bet. Still, Sole said the footwear industry can continue growing, thanks in part to the increasing popularity on sportswear in everyday life. — CNBC’s Michael Bloom contributed to this report
