4Q results to date have brought modest upside in the quarter and below- consensus guidance. In this report, we review the 15 Active Lifestyle companies that have reported so far. Slightly more than half have topped either sales or EPS estimates, but guidance was disappointing, with 4 companies in line and 8 companies below consensus.
Active Lifestyle stock performance was largely in line in February, but has outperformed year-to-date. Active Lifestyle names were up 5% in February, in line with the S&P Consumer Discretionary index and slightly ahead of the S&P 500 which was up 4%. Through February, the space was up 15% compared to the S&P 500 which rose 9%.
Valuation is now slightly ahead of 5-year median levels. With the stock market rally, the median Active Lifestyle P/E and EV/EBITDA multiples are now 9.3x and 15.5x, compared to the 5-year median multiples of 9.2x and 14.9x.
Sector inventory growth starting to slow, but remains above sales growth. For companies that have reported 4Q results, inventory is up 28% year-over-year, a deceleration from 3Q which was up 38%. On the other hand, revenue growth accelerated from 18% in 3Q to 23% thus far in 4Q. The combined result is the gap between inventory growth and revenue growth significantly improving from 3Q to 4Q. While this overall trend is positive in our view, pockets of excess wintergoods inventory remain a challenge for the industry.
February input cost trends tick-up with cotton being the exception. In February, fiber costs were up low to mid-single digits from January, except for cotton, which was down 4% month-over-month. Outside of cotton, fiber costs remain stubbornly high with some categories, such as synthetics, remaining a headwind for the full year. We further detail recent input cost trends and the impact to our universe.
Currency remains a modest headwind. After updating our currency model for exchange rates in February, it appears that currency translation remains a modest headwind in 1Q (less than 1%) and for the full year (very low-single digit). We outline the currency translation impact by quarter for companies under coverage.
Raising price targets on select names. With recent share appreciation fueling valuation multiple expansion across our universe, we are revising our price targets on GIL, LULU, PSUN and ZQK.
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