Foot Locker (NYSE:FL) stock is down over 15% since the company reported first-quarter sales and profits that missed expectations.
Sports apparel companies have been the primary benefactors of the athleisure trend, as sneakers and yoga pants find a place both inside and outside the gym. But it appears the style may be losing some of its cool factor. If so, shareholders will need to get used to slower growth than what the company has enjoyed in years past.
The tracksuit 2.0
For decades, clothing has been getting increasingly comfortable and casual. Gym clothes and other workout inspirations have even hit fashion runways -- that helped athletic wear make it into the workplace and other previously unimaginable places.
According to some fashion experts, though, athleisure is simply the new normal, and as a result, growth will dwindle as consumers inevitably turn their attention to newer looks and trends.
Until then, there is plenty of competition to make things difficult for companies in the space. Virtually every famous VIP has their own line of fashionable workout clothes these days, and clothing retailers from The Gap to L Brands have launched their own version of gym wear, too. Under Armour is also getting into the "off-field" clothing business, which you can now pick up at your local Kohl's department store. Suffice it to say that athletic wear is no longer the cutting edge of fashion, so when the designers and runways move onto the next big thing, the general public will eventually follow suit.
Foot Locker in Q1 2017
That does not mean demand for sportswear will disappear altogether. Case in point -- Foot Locker reported strong sales and one of its most profitable quarters ever to kick off 2017.
That said, some weakness in the growth machine was revealed. Sales were up only slightly from last year, which Foot Locker says is due in part to delayed IRS tax refunds. Profits were also down.
|Metric||Q1 2017||Q1 2016||Change (YOY)|
|Revenue||$2.00 billion||$1.99 billion||0.7%|
|Earnings per share||$1.36||$1.39||(2.2%)|
Management still thinks it can muster mid-single digit comparable-sales growth by the second half of the year, but a plan B has been put in place. That consists of cost-cutting and tight control over inventory so the company can still deliver full-year profit growth even if sales sputter.
The return to average
Comfortable clothing and action footwear aren't going away. Sports have been around for millennia, and now that traditional sports fabrics like spandex have made their way into more formal settings, athleisure or some form of it is likely to stick around for a while.
The point, though, is that as athleisure becomes increasingly mainstream, growth in sales for stores like Foot Locker could ebb as competition gains steam. According to the Sports and Fitness Industry Association, athletic apparel sales only grew 1.9% in 2016 compared to total retail sales growth of 3.3%. That is lackluster performance, and if it continues, Foot Locker will need to increasingly rely on cost cuts to drive profitability and find a new growth catalyst going forward.
Shareholders may have to get used to boring performance, at least compared with what was a high-growth stock over the last few years. If you're an investor who believes in the undying popularity of sports, an actual manufacturer of sports gear and apparel is a better place to look at this point.