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Weight loss drugs likely to boost apparel stocks: Survey

The market for GLP-1 weight loss drugs such as Wegovy and Ozempic have captured Wall Street's attention. A consumer survey carried out by Stifel Financial (SF) found 15% of respondents currently use a GLP-1 drug while an additional 21% said they would be interested if it were FDA approved with proven results.

Stifel Analyst Jim Duffy joins Yahoo Finance to discuss how the uptake of weight loss drugs could prompt a shift in spending trends and the greater impact of GLP-1's across industries.

"We do expect that there will be less calories consumed, by the projections of our food & beverage team, get to 4% less calories consumed with this adoption. We do think that there's going to be more apparel spend," Duffy says. "Consumers are losing significant amounts of weight on these drugs, some clinical trials, including one released recently from Mounjaro, speaks to greater than 40% of consumers losing more than 10% of their body weight."

Duffy names Lululemon (LULU), Dick's Sporting Goods (DKS) and Levi's (LEVI) as potential winners.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video transcript

SEANA SMITH: All right, let's talk about another big story that we have been following very closely here at Yahoo Finance, and it's America's obsession with weight loss and diabetes drugs has certainly tipped the scales this year for Wall Street. Now pharma companies like Novo Nordisk and Eli Lilly are cashing in on these newer drugs in a class known as GLP-1s. And it could have big implications for other sectors.

There's a new note out from Stifel breaking down the potential ripple effects of these weight loss drugs and what stocks are going to be winners and which could be losers as a result. We want to bring in one of the analysts behind that note, Jim Duffy of Stifel. Jim, it's great to see you here. So before we dive into the winners and losers, I'm curious to get your perspective on the US consumer survey that you did conduct. It was all on use or planned use. What did you find because I think that's the big question mark right now in terms of what the impact is going to be, is just what the uptake rate is going to look like?

JIM DUFFY: Yeah, well, first, thank you for having me on the show again. This is a proprietary Stifel survey of consumers. What the survey found was that 15% of consumers are currently engaged with the drug, 9% percentage of those for diabetes purposes, the other 6% presumably for weight loss purposes. Perhaps more interesting was that 21% of consumers indicate that they would be interested in partaking with the drug should it become more widely available, FDA approved, and affordable. Looking within that additional 21% of consumers, it skews more affluent and skews more female.

BRAD SMITH: OK. And so that affordability factor too, because that can play a big role in if they're purchasing more of these GLP-1s, what are they purchasing less of, perhaps. And so was there a kind of a sweet spot that the survey really uncovered here?

JIM DUFFY: Well, I don't know that we necessarily balanced the share of wallet. But we do expect that there will be less calories consumed. The projections of our food and beverage team get to 4% less calories consumed with this adoption. And we do think that there's going to be more apparel spend. Consumers are losing significant amount of weight on these drugs. Some clinical trials, including one released recently from [INAUDIBLE] speaks to greater than 40% of consumers losing more than 10% of their body weight. And so we think those consumers are going to need new clothes.

And so we do think this is going to be beneficial for category spend in the apparel space, specifically for names like Lululemon, contour brands which owns the Lee and Wrangler brands, and then Levi's.

SEANA SMITH: Jim, how much is it going to move the needle in terms of the impact that it's going to have, yes, a positioned to benefit? But I guess when you drill down into the numbers, what does that then look like?

JIM DUFFY: Yeah, here's the math that we went through. If you take that 21% of consumers, assume that half of them engage with a GLP-1 variant, half of them stick with it for a year, and 40% of them lose upwards of 10% of their body weight, that's about 2% of consumers. And we think that can consumer is going to need to upgrade their wardrobe and would spend double the amount of apparel on an annual basis.

And so we think it can be a low to mid single digit benefit to overall apparel category spend, concentrated with certain brands, particularly those that have a concentration in bottoms. I mentioned Lululemon. Lululemon has a very strong bottoms business. There are other dimensions of where we think they could be a beneficiary. Exercise increases the efficacy of these drugs. And so we do think you'll see some increased participation. Then of course, if you're losing weight and feeling good, you may want to dress a little sportier, and so we think Lululemon could be a beneficiary there as well.