Levi's is seeing growing demand for looser fits. This is what it means for Lululemon and Nike

By James Rogers

Iconic jeans-maker Levi's reported second-quarter results late Wednesday

Levi Strauss & Co. Inc. highlighted growing demand for looser fits when the iconic jeans maker reported second-quarter results late Wednesday. The trend could have implications for athletic apparel retailers Lululemon Athletica Inc. and Nike Inc., according to analyst firm Jefferies.

Speaking during the second-quarter conference call Levi's (LEVI) CEO Michelle Gass said that loose fits grew 21% during the quarter. "We are continuing to lean into the trend this summer with the launch of a new baggy fit for women, the XL, which will be available globally and across channels along with a new relaxed fit for men, the 555," she added.

The trend around baggy, loose, and wide-leg jeans is resonating, according to Gass, who said that key customers are excited.

"They're ordering it and consumers are responding," she added. "And our sellout trends are improving across our wholesale channel. So that's a leading indicator. So we're really encouraged by that."

Related: Levi's wants to sell a 'denim lifestyle' directly to consumers. Wall Street needs more convincing.

In a note released Thursday Jefferies weighed the impact of the trend on athletic apparel giants Lululemon (LULU) and Nike (NKE). "We believe mgmt's commentary supports our view that more normalized Athletic Apparel market growth and a fashion shift toward denim/looser fits could impact Athletic Apparel retailers such as LULU," wrote Jefferies analyst Randal J. Konik.

Interest in looser-fitting products is gaining steam, according to Konik, who says this remains an underappreciated risk to athletic apparel retailers such as Lululemon and Nike. "Interest in wide-leg pants has grown significantly over the past several years and LEVI's 2Q commentary further supports this trend," he wrote. "The company's Loose Fit's grew 21% YoY across all channels and mgmt noted they're continuing to lean into this trend this summer, launching a new baggy fit for women and a new relaxed fit for men."

Citing Google Trends data, Konik wrote that interest in "wide leg pants" has grown 9% year-to-date while interest in "flare leg pants" and "skinny pants" have declined around 13% and around 16%, respectively. While Nike could face some headwinds related to this trend, Jefferies said that Lululemon could be impacted further "given its skew towards women and this fashion shift being outside of LULU's core and overall expertise."

Related: Lululemon's Two-Tone tote shows how retailer is looking to get back on track

Levi's grew quarterly sales but still missed Wall Street's expectations in its second-quarter results. The company's shares were down 15.2% in premarket trades.

Shares of Nike, which reports fourth-quarter results after market close, are up 0.04%. Lulelemon's stock is up 0.1%.

Bill Peters contributed.

-James Rogers

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06-27-24 0801ET

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