Athleta has the potential to reach $1.1bn in sales over the next five years

Athleta has the potential to reach $1.1bn in sales over the next five years

Any talk of Gap Inc's portfolio invariably focuses on its Gap, Banana Republic and Old Navy brands. But new number crunching suggests the company's Athleta women's athletic wear line is also gaining momentum.

It's a measure of the high growth potential of athletic apparel, as well as the "significant mindshare" gains amongst consumers, that the Athleta business is seen as having the potential to reach $1.1bn in sales over the next five years.

It's an even more impressive figure given that the brand is thought to have generated sales of just $180m in 2012. While the parent company reports global brand sales for Gap, Banana Republic and Old Navy, it does not break out the sales of other brands such as Athleta, Piperlime, and Intermix.

"Our estimates assume the brand generated $270m in sales in 2013 and that GPS can grow the business at a 32% five-year CAGR as it ramps to over 250 stores (from 79 at the end of Q2)," explains analyst John Kernan at investment firm Cowen.

His calculation also sees the brand reaching $200m in EBITDA (earnings before interest, taxes, depreciation, and amortization) by FY18.

This compares with a much more conservative 3% sales compound annual growth rate (CAGR) to FY18 for Gap, Banana Republic and Old Navy - taking sales at the brands from $6.35bn, $2.89bn and $6.11bn respectively in 2013 to an estimated $7.49bn, $3.25bn and $7.37bn in 2018.

In total, Gap Inc's sales are seen rising from $16.15bn to $19.99bn in the five-year period.

Not only does Athleta "continue to impress in terms of product innovation and category expansion suggesting continued share gains from competitors," but consumers appear to be proactively seeking the brand.

An analysis of Internet search terms, using data from Google Trends, implies that Athleta "has been gaining significant mindshare amongst consumers over the past year," explains Kernan. According to Google Trends, Athleta averaged 12% year-on-year growth in search queries (relative to total Google queries) in the past three months while Lululemon searches declined 11%.

"Although Lululemon continues to hold a significant advantage in terms of total Google searches relative to Athleta, increased interest in, and distribution of, the Athleta brand should help GPS to continue to narrow the gap over the coming years," he adds.

Style-conscious fitness enthusiasts
Gap Inc bought Athleta in September 2008 for $150m to secure a foothold in the growing women's active apparel market in the US, and has since developed the catalogue business to embrace e-commerce and physical bricks-and-mortar stores.

The company sells clothing for yoga, running and swimwear, and its growth mirrors a wider rise in sales of indoor sportswear and fitness apparel that also appeals to style-conscious fitness enthusiasts who will also wear items away from the gym.

This desire to not only get fit, but also to "look active", has also helped activewear sales to outpace the general apparel market, recent US research suggests - with total sales of US athletic footwear and activewear reaching US$36bn in the eight months to August last year, according to NPD Group's Consumer Tracking Service.

Women's contributed 5% or $7bn in sales to the activewear market, with double-digit gains in sales of active pants, tees/athletic tops, and sweatshirts.

While the sector has already provided huge growth opportunities for brands such as Lululemon, Under Armour and Nike - Lululemon has been battling a number of issues in recent months, including product quality issues, a lack of enough new and innovative product, and criticism from its founder and biggest shareholder Chip Wilson.

It is against this background, and a market fixated on whether the Canadian yoga-wear specialist can stage a comeback, that Athleta has been quietly shoring up its position in the sector. And confirming the cross-over from fitness to fashion, the firm plans to show for the first time during New York Fashion Week at the beginning of next month.