Barron's Streetwise Podcast

Episode: Lululemon Is Stretched Thin

Host: Jack Howe (Barron's columnist)
Guest: Randy Connick (Jefferies stock analyst)
Air Date: March 28, 2025

Overview

In this episode, Jack Howe examines the shifting landscape for major consumer brands, highlighting the rise of "food insurgents" and the struggles of the 60/40 portfolio model in today's market. The central focus shifts to Lululemon, a onetime Wall Street darling now facing slowdowns and stiffer competition. Jefferies analyst Randy Connick joins to discuss why he’s bearish on Lululemon, where he sees risks, and why, in contrast, he’s turning bullish on Nike. The conversation includes deep market context, colorful anecdotes, and a memorable exploration of why smaller brands and authenticity matter more than ever.

Key Topics & Discussion Points

1. The Changing Food Brand Landscape

Timestamps: 00:48 – 13:31

Main Points:

• Large food and beverage brands are losing market share to smaller, upstart brands ("food insurgents").
• Pepsi’s acquisition of Poppy (prebiotic soda) for billions exemplifies how legacy companies are buying into innovation they can’t generate themselves.
• Tony's Chocolonely’s origin story captures the new era of "cause brands"—companies selling a mission as much as a product.
• Many insurgents sell on ethics, health, or distinct “smallness,” capturing a disproportionate share of industry growth.
• JP Morgan and Bain & Co. analysis indicate:
  • Private label and non-major brands are gaining momentum in 61–67% of food categories.
  • Small brands collectively hold <1% market share but drive 27% of industry growth (06:50).
  • Publicly traded food giants lose market share every year—at an increasing rate.

Notable Quotes:

• “These bars are more expensive than other bars. If that’s something you’re into, maybe you’ve had them, or maybe you’ve at least seen them.” — Jack Howe on Tony's Chocolonely (05:19)
• “There’s a lot of customers who are skipping over established brands and they’re going for stories about health, about ethics, about smallness. And I think that could mean more market share losses for Big Food, or just like with Poppy, it could lead to some pricey dealmaking.” — Jack Howe (12:31)

Memorable Moments:

• The history of Tony’s Chocolonely’s founder attempting to arrest himself on live TV for “financing slavery and child labor.” (03:44)
• “When you break apart a Tony’s Chocolate Only bar, it breaks into odd sized bits and pieces... to represent the inequality in the cocoa industry.” — Jack Howe (04:34)

Quick Brand Tour:

• Tillamook (cheese): Fastest-growing, now 3.6% market share.
• Black Rifle Coffee: Military/gun appreciation theme; outsells Starbucks in the coffee pod category with 1.9%.
• Amy’s Kitchen: 4.7% market share in frozen dinners; family-owned.
• Goodles: A 3-year-old boxed mac & cheese brand; 2.2% market share, $100m+ run-rate (10:17).

2. The 60/40 Portfolio Debate

Timestamps: 00:00 – 00:24; 13:54 – 14:25; 30:38 – 31:19

Main Points:

• Jomana Selehin (Vanguard) argues “60/40” is more a mindset than a literal allocation.
• Customization (“tilting”) and personalization are the next frontiers for balanced investing.

Notable Quote:

• "60/40 shouldn't be thought of in such a literal way ... It's important to just say what is 60/40, because it actually means different things to different people." — Jomana Selehin (14:03)

3. Deep Dive: Lululemon vs. Nike

Timestamps: 14:42 – 29:55

A. Lululemon: What's Going Wrong?

Main Points:

• Lululemon has grown impressively—now $10B in annual revenue—by dominating core categories (leggings, men’s pants).
• Growth has slowed markedly, especially in the U.S., and same-store sales are weak.
• Analyst Randy Connick is bearish: Lululemon’s attempts to expand into non-core categories (women’s sweaters, skirts, and more) aren’t working.
• Gross margin resilience (“the rabbit out of the hat”) can no longer offset topline weakness.
• Concerns compounded by rising competition from upstarts and legacy brands (Nike, Under Armour) and by Lululemon’s stretched valuation.

Notable Quotes:

• “[Lululemon's] trying to reach into that bag of tricks or the rabbit coming out of the hat to sustain growth ... We think those new products aren’t working.” — Randy Connick (16:19)
• “Now they're trying to sell everything ... It's not sticking with the core aesthetic. It presents a lot of risk.” — Randy Connick, on Lululemon stores looking like The Gap (18:17)
• “We basically see a vision of a company where it goes negative growth in the United States in 2025, offset partially by still solid growth in international markets, particularly in China.” — Randy Connick (19:52)
• “The market cap of Lululemon is above $40B… Under Armour for all its struggles is less than $3B. We're of the view that Lululemon has an elevated market cap and valuation for what it is … could go into the high 20s billion over this coming year.” — Randy Connick (20:48)

Memorable Moments:

• “Welcome to the Gap” — Connick’s research note headline, signaling Lululemon’s shift from niche to nearly everything, with attendant risks. (18:17)

Key Risks & Analyst Watchpoints (22:12):

• Softness in U.S. sales: expect continued deterioration.
• Gross margins: may start to crack after years of resilience.
• International expectations are high; any disappointment could hurt.

B. Nike: Reasons for Turnaround Optimism

Main Points:

• Nike has faced challenges under prior leadership (product innovation, distribution focus, CEO fit).
• Recent leadership changes herald a new phase: new CEO (Elliot Hill, a “culture carrier”) and strategic refocus on balanced wholesale and direct sales.
• Still the dominant player in a field with limited true competitors (“the Coca Cola of athletic footwear”).
• Stock trading at a 10-year low on valuation metrics; analyst sets a $115 price target vs. $66 current price—a near double if the turnaround takes hold.

Notable Quotes:

• “What changed was the bad CEO got kind of kicked out and they hired an executive that was at the business forever ... to improve culture very immediately at Nike.” — Randy Connick (24:01)
• “Nike’s still number one...There’s really only 10 companies that matter in athletic footwear.” — Randy Connick (25:55)
• “With Coca Cola you want to be able to buy it in a deli, in a supermarket, at a Jets game ... With Nike, the same kind of perspective, it’s a ubiquitous brand that wants to be bought wherever and everywhere.” — Randy Connick (27:31)

Memorable Moments:

• Jack’s anecdote about switching between New Balance and Hoka for “coolness,” illustrating fickle consumer tastes. (23:16)
• “Foot Locker maybe didn’t love it ... could give more shelf space to upstarts” — On how direct-to-consumer stances backfired for Nike. (26:37)

Turnaround Roadmap:

• Strengthen wholesale-retail balance.
• Rediscover product innovation.
• Leverage cultural ubiquity.
• Timeline: Recovery expected over the next two years, not next quarter.

Notable Quotes & Highlights by Timestamp

• Jack Howe (on Tony’s Chocolonely):
  “When you break apart a Tony’s Chocolate Only bar, it breaks into odd sized bits...to represent the inequality in the cocoa industry.” (04:34)
• Randy Connick (Lululemon's struggles):
  “We think those new products aren’t working. Those new products are not in the core.” (16:19)
• Randy Connick (on brand positioning):
  “Nike’s still number one...there’s really only 10 companies that matter in athletic footwear and if those other companies gain a little market share, that’s fine. But Nike’s still the big player, right? It’s still the Coca Cola of the space.” (25:55)
• Jack Howe (consumer sentiment):
  “There’s a lot of customers who are skipping over established brands and they’re going for stories about health, about ethics, about smallness...” (12:31)
• Randy Connick (Nike’s outlook):
  “Our price target is $115 a share, the stock $66 as we speak. ... This is not going to happen overnight. This is a business that needs to go through a journey...” (29:05)

Conclusions & Takeaways

• Big brands face headwinds: Both in food and apparel, large companies need reinvention to keep pace with smaller, nimbler rivals and rapidly evolving consumer tastes.
• Story, ethics, and authenticity matter: Upstart brands win market share less on price, more on values and narrative.
• Lululemon’s premium is hard to justify: Without new "core" product wins, and with U.S. sales stagnating, the stock's $40B+ valuation looks vulnerable.
• Nike is positioned for a comeback: Strategic management changes and a renewed focus on innovation and distribution signal a potential turnaround—albeit one that will take time.

Additional References

• 60/40 Portfolio Model (Jomana Selehin, Vanguard):
  • Emphasizes adaptation over rigid adherence; customizing portfolios for individual needs, tilting for market context. (14:03, 30:54)

For Quick Reference: Segment Timestamps

• [00:48–13:31] – The rise of food insurgents & the business of stories
• [14:42–23:16] – Lululemon: Analyst critique and examination
• [23:16–29:55] – Nike's recovery roadmap
• [00:00, 13:54, 30:38] – 60/40 model & portfolio personalization

This summary distills the original conversation, ensuring listeners (and non-listeners) can appreciate the episode’s insights into consumer trends, investment risks, and the strategies behind two of the apparel world’s titans.