Bernstein Names Nike, Adidas, On as Top Apparel Picks; Sees Headwinds for Lululemon

Analysts at Bernstein have outlined a divided outlook for the U.S. apparel and specialty retail sector, highlighting brands positioned for growth through innovation while flagging others facing significant competitive challenges. The firm initiated coverage with 'Outperform' ratings for Adidas, Nike, and On Holding, expressing confidence in their ability to expand market share.

The 'Outperform' Trio

Bernstein identified three companies with strong growth prospects driven by product development, improved distribution, and geographic expansion. The firm's top picks include:

• Adidas (ADDYY): Rated 'Outperform' with a $132.50 price target. Bernstein expects Adidas to gain U.S. market share, forecasting a 7% compound annual growth rate (CAGR) in U.S. sales through 2030. This growth is anticipated to be fueled by momentum in its Lifestyle category and a stronger running shoe lineup.
• Nike (NKE): Also rated 'Outperform' with a $68 price target. The firm sees a recovery for Nike supported by product innovation and a renewed focus on wholesale distribution channels. Bernstein projects U.S. gross merchandise volume (GMV) to grow at a 3%-4% CAGR through 2030.
• On Holding (ONON): Assigned an 'Outperform' rating and a $62 price target. Bernstein noted that On has the "longest growth runway" due to lower market penetration and significant opportunities to scale. The firm forecasts a 12% U.S. sales CAGR through 2030, which would increase its market share from 1.5% to 2.3%.

Competitive Pressures for Peers

In contrast, Bernstein adopted a more cautious stance on Lululemon and Deckers Outdoor, citing rising competition and product-related risks.

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Lululemon (LULU) received a 'Market-Perform' rating with a $145 price target. The firm projects Lululemon will continue to lose U.S. market share, with sales remaining "broadly flat through 2030." Bernstein pointed to intensifying competition from premium brands such as Alo and Vuori as a primary headwind.

Deckers Outdoor (DECK) was also rated 'Market-Perform' with a $105 price target. While Bernstein acknowledges upside potential from a recovery in its Hoka brand, the firm remains cautious. Analysts cited "innovation and competitive risks" for both Hoka and Ugg, alongside potential margin pressure from cost inflation.

Investment Thesis: Innovation and Distribution

Bernstein's analysis suggests that the key differentiators in the current apparel market are product innovation and effective distribution strategies. The firm's ratings favor companies that are successfully expanding their reach and refreshing their offerings to capture shifting consumer preferences. Conversely, brands facing product challenges or increased competition in their core categories are viewed with more reservation.