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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