Levi's says baggy jeans are back. That could be trouble for Lululemon's hip-hugging leggings.

By Emily Bary

Consumers seem to want baggier and wider-legged pants - a trend that doesn't play to Lululemon's strengths, according to an analyst

Levi Strauss & Co. is benefitting from strong growth in loose-fitting jeans, and one analyst says that could be trouble for Lululemon Athletica Inc.

The jeans maker's fiscal first-quarter results, released Wednesday, benefitted from more than 40% growth in the company's loose-fit jeans on both the men's and women's sides. Levi's (LEVI) launched six new women's baggy styles recently.

The company is "in the denim cycle of looser, baggier," Chief Executive Michelle Gass said on its earnings call Wednesday. That's "definitely" a preference for women currently, and it's becoming a growing one for men as well, she noted.

See also: Levi's jeans demand is 'stabilizing,' execs say. Is 'Levii's Jeans' by Beyoncé helping?

Jefferies analyst Randal Konik worries that the trend doesn't bode well for Lululemon (LULU), which makes athletic leggings and other sportswear.

"We believe [management's] commentary further supports our view that more normalized athletic-apparel market growth and a fashion shift toward wide-leg bottoms are underappreciated headwinds [Lululemon] could face," he wrote in a note to clients Thursday.

While Lululemon has been trying to play into the trend of wider-leg pants as well with its athletic wear, Konik isn't sure the athleisure company's efforts are resonating there.

"To better understand current trends, we recently visited multiple store locations ... and found that wide-leg bottoms were heavier in inventory and appearing on the sale rack," he wrote. To him, that suggests that either customers aren't adopting wide-leg athletic pants very quickly, or that Lululemon is losing market share to rivals in that category.

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In a separate report earlier in April, Konik flagged that Lululemon "is known for tight leggings, not jogging pants."

He also said then that incremental consumer dollars seem to be going toward Alo and Vuori, two other makers of activewear. Those companies have been opening locations near Lululemon stores, a dynamic Konik expects to continue.

He has an underperform rating and $240 target price on Lululemon shares, which were off 2.4% in Thursday afternoon trading. Levi's shares were up 15.9%.

-Emily Bary

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04-04-24 1406ET

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