BMO Capital Markets Corp. initiated coverage on Nike, Dick’s Sporting Goods, Deckers Outdoor and Lululemon Athletica with “Underperform” ratings on expectations that trends are shifting away from athletic footwear and athleisure.
“Despite recent sell-off, we remain negative on athletic,” wrote Kelly Crago, lead analyst at BMO Capital in the Softlines Retail, Apparel & Footwear sector in a note issued September 8. “The cycle is turning against the group following a decade-long athletic cycle. Women are increasingly trading into brown shoe/dress away from casual sneakers, a multi-year headwind, in our view, that the market has not fully appreciated.”
BMO Capital becomes the latest investment firm to shift to more cautious outlooks on the active lifestyle space given signs of weakening demand and inventory buildups in lifestyle athletic footwear, including with recent coverage updates from Baird and Morgan Stanley.
Crago overall initiated coverage of 17 stocks in the softlines space, with her favorite stock picks including Amer Sports and Steve Madden. She expects Amer Sports to particularly benefit from momentum at Salomon while calling Steve Madden the “biggest beneficiary of the next brown shoe cycle.”
Other stocks rated “Outperform” were Carter’s and Abercrombie Fitch. Stocks rated “Market Perform” included Victoria’s Secret, American Eagle Outfitters, Ulta Beauty, Urban Outfitters, Birkenstock Holdings, Academy Sports and Outdoors, Gap, Bath & Body Works and On Holding.
Crago summed up her overall coverage, “A weakening consumer, sticky inflation, and rising costs leave us cautious on the FY27 outlook for the group. We favor stocks with a story to tell in FY27 to help offset rising macro headwinds.”
Regarding the athletics category, Crago noted both athletic footwear and apparel have benefited over the last decade from casualization trends. She wrote, “Consumers increasingly chose athletic for everyday uses as dress codes relaxed everywhere, and sneakers became everyday footwear – otherwise known as the “athleisure trend.”
During the pandemic, the strength in athletics accelerated as lockdowns and work from home policies “pulled years of demand forward.” The momentum propelled the athletic footwear to expand from 42.4 percent of the U.S. market in 2015 to 57.2 percent in 2025, marking 11 straight years of gains. Winning franchises during the athletic cycle included Dunks, AJ1s, Air Force 1s, Sambas, Gazelles, New Balance, and On Clouds, although Nike began losing share in active lifestyle sneakers after demand for classic franchises peaked in 2023.
However, the apparel category began seeing demand shift to fashion in late 2023, with Lululemon seeing pressure as bottoms demand shifted from leggings to denim.
This year, demand has weakened in athletic footwear, signaled by slowing sell-through and elevated promotions in the active lifestyle category during back-to-school selling. She also cited comments from Steve Madden’s management that it’s seeing accelerating demand in the wholesale channel and the company is returning to “chase mode” for the first time in many years.
As a result, Crago believes 2026 will mark the first year in over a decade where demand for fashion footwear outpaces athletic. Crago expects lifestyle sneaker promotions to persist into the 2026 holiday selling season and retailers to then plan the category conservatively in 2027.
Crago also suspects Nike will highlight a weakening orderbook for the North America region heading into spring 2027, and that will weigh against competitors due to the brand’s dominant presence within athletic. The analyst wrote, “Nike pulls down competing brands through promotion and pressures the retail partners that carry it. Persistent weakness, as Nike is seeing, runs the risk of further alienating consumers and weakening retail partners already facing a challenging macro.”
In initiating Nike at an “Underperform” rating with a $30 price target, Crago wrote, “Nike remains the largest, most important athletic brand despite recent challenges. Now CEO Elliott Hill is tasked with returning NKE to its former glory, a prospect that faces big challenges. Slowing lifestyle demand, a full China distribution reset, and structurally lower margins push a fully recovered ~$3.00 EPS out to FY31. We expect management to reset the FY27 bar when it reports 1Q27 EPS on October 1, ahead of its 11/17 investor day, leaving the “Nike Premium” at risk of further erosion.”
Dick’s was initiated at “Underperform” at $110 price target in large part to its exposure to Nike. Crago stated, “Dick’s bought Foot Locker just as the decade-long casualization cycle turned, adding a structurally challenged asset with heavy lifestyle and Nike exposure. The core banner laps its World Cup tailwind in 1H27 into a more promotional backdrop, and we expect multiple compression to continue until trends visibly stabilize.”
Lululemon was initiated at an “Underperform” rating with a $70 target price due weaking demand in both the Americas and China. Crago wrote, “Incoming CEO Heidi O’Neill inherits a business in need of a full reset, and we model FY27 EPS of $6.35 against consensus of $8.42, earnings power at risk that the market may not yet appreciate.”
Coverage of Deckers Outdoor was initiated at “Underperform” at a $70 price target as the “weakening athletic demand backdrop” raises concerns over Hoka’s growth prospects. Crago said, “With operating margins near-peak levels, we see risk of further margin compression ahead in a more promotional athletic category backdrop. We expect management to cut Hoka guidance on its 2Q27 EPS in late October, leaving us cautious on the current risk/reward.”
On Holding’s coverage was initiated at “Market Perform” at a $28 price target. Crago stated, “While we believe ONON still has opportunities to grow, the next phase of growth looks more challenging, as management targets a scale only few athletic brands have achieved, against a more difficult demand backdrop.”
Academy Sports was initiated at a “Market Perform” rating with a $42 price target. Crago stated, “After four years of struggling to drive positive comps under a favorable athletic category backdrop, we believe the path to consistent positive comps has grown even steeper now that the athletic category is slowing, making it difficult to underwrite ASO’s long-term store growth runway.”
In initiating coverage of Amer Sports with an “Outperform” rating at a $38 price target, Crago stated, “Amer is one of the few durable growth stories left in consumer discretionary, with Arc’teryx compounding and Salomon’s brand heat and under-penetrated U.S. distribution offering real upside to consensus.”
Image courtesy Nike
