Health and wellness stocks Nike, Lululemon and Herbalife pullback

Health and wellness stocks have struggled in 2022 as rising inflation impacts operating costs and consumer demand. However, there are still some reasons to be optimistic about Nike, Lululemon and Herbalife.

Health and wellness stocks like Nike [NKE], Lululemon [LULU] and Herbalife [HLF] have wiped out majority of the gains made during the coronavirus pandemic, when consumers switched to exercising at home and looked for new ways to improve their wellbeing during lockdown periods.

All three stocks are in the red in the year-to-date and have seen a similar decline to the Global X Health and Wellness ETF [BFIT], which is down 22.5% so far in 2022 (through 23 August). Nike, Lululemon and Herbalife have a 2.88%, 2.84% and 1.47% respective weighting in the fund.

According to a 2021 report by McKinsey, the health and wellness market was worth $1.5trn globally. However, soaring inflation and the looming threat of recession seem likely to trigger major cutbacks in spending, and these stocks have reversed their gains as a result of these growing pressures.

Can brand loyalty help Nike weather difficult times?

Nike’s sales boomed during the pandemic, with pent-up demand after lockdowns playing a big part. In July 2021, the company reported its highest quarterly sales for 50 years, announcing more than $12bn in sales and $1.5bn in profit.

However, 2022 has been less celebratory, with soaring inflation, supply chain issues and the Russia-Ukraine war piling on pressure. In June 2022, it reported its revenue for Q4 2022 fell 1% to $12.2bn, though full-year fiscal 2022 revenue rose 5% to $46.7bn. The company’s direct-to-consumer arm, Nike Direct, performed particularly well in the full year, with revenue up 14% to $18.7bn.

“Nike’s results this fiscal year are a testament to the unmatched strength of our brands and our deep connection with consumers,” CEO and president John Donohoe said.

Year-to-date, the Nike share price is down 33.3% at the close on 23 August. While Nike stock has received a number of analyst downgrades in the past few months, the consensus from 33 analysts polled by CNN is still to ‘buy’ the stock.

Lululemon raises guidance for fiscal year

Lululemon has also seen its stock slide in 2022, though less dramatically than Nike, closing 19.3% down on 23 August from the start of the year.

Like Nike, the purveyor of upmarket yoga gear saw sales surge during the pandemic, but there are growing fears stretched shoppers will cut back on non-essential spending.

But there have been signs of optimism for Lululemon. In June, the company raised its guidance for fiscal 2022, despite wider economic headwinds. It predicted sales in a range of $7.61bn to $7.71bn, previously forecast at $7.49bn to $7.62bn. For Q1, it reported an earnings beat of $1.48, ahead of the $1.43 predicted by Refinitiv analysts. Calvin McDonald, CEO of the company, said: “Our product pipeline remains very strong and it’s the bedrock of the business.”

At CNN, a consensus of 32 analysts rate it a ‘buy’. In July, KeyBanc initiated coverage on Lululemon with an ‘overweight’ rating and $350 price target, which would represent a 10.4% upside on its 23 August closing price. While it has received several analyst downgrades in recent weeks, there are still signs of optimism: last month Goldman Sachs lowered its target from $456 to $365, but maintained a ‘conviction buy’ rating and noted that its brand momentum is “solid” even amid difficult conditions for consumer goods.

Herbalife Nutrition exceeded guidance in Q2

The share price of Herbalife, which sells diet and nutritional supplements, is struggling of late. It’s another wellness stock that’s seen its value plummet 30.9% year to date as of 23 August.

Its second quarter 2022 results, for the period ended 30 June, exceeded guidance, with sales of $1.4bn, but this was still a 10.3% decrease year-over-year.

At the start of August, Jeff Van Sinderen, an analyst at B Riley, downgraded Q3 2022 earnings estimates from $0.81 per share to $0.74. However, Van Sinderen noted that the company “has potential to return to respectable growth” and expected that cash flow will remain robust. Overall, he said that the stock “arguably is undervalued”.

At MarketScreener, a consensus of four analysts rate Herbalife stock a ‘buy’, with the median price of $34.67 implying a 22% rise from its 23 August closing price.