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Athletic apparel race heats up with new competitor

Gym rats now have another option for looking stylish while working out.

Urban Outfitters has entered the red-hot athletic apparel market, bringing its eclectic styles to sports bras, running pants and tank tops.

The Without Walls concept opened in five stores from New York City to Hollywood on Saturday, and it has five other stores planned to open this year.

Urban Outfitters' Without Walls collection
Source: Urban Outfitters
Urban Outfitters' Without Walls collection

Though it's still too soon to say what type of impact the line will have on sales—or on industry heavyweight Lululemon and up-and-comer Athleta—it's a big step toward filling a hole in the brand's assortment, said Wells Fargo analyst Paul Lejuez.

"We believe there is potential for Without Walls to be in all Urban Outfitters stores over time, and/or evolve into a standalone concept," he said in a research note. "At the very least, they appear to have a new category to drive traffic to stores [exactly what they need] and potentially attract a new customer."

(Read more: Avoiding Target stores? You're not the only one)

The collection comes at an inflection point in the athletic-wear category, which has been one of the few standouts in a tough consumer environment. According to the NPD Group, sportswear sales at U.S. sporting goods chains increased 14 percent to $2.7 billion in 2013.

Gap-owned Athleta had 65 stores as of February, and plans to open about 30 additional shops over the next year.

Lululemon is still working to rebuild consumers' trust in its products after being dragged through a media firestorm last year over reports that its luon pants could pill and become sheer. Things got worse for the brand when former Chairman Chip Wilson said in an interview that the pants weren't meant for all women's bodies.

(Read more: Lululemon—A downward dog no more?)

Though Oppenheimer upgraded Lululemon to "outperform" last month, raising its 12- to 18-month price target to $63, its shares are trading near $50—$32 lower than its 52-week high.

Urban Outfitters' collection—which features private label items and third-party brands such as Vans and Columbia—has prices more closely aligned with Athleta, whose average price tag is about 13 percent lower than Lululemon, according to Oppenheimer.

It should also be a vehicle for the retailer to further grow its sales, particularly online, Lejuez said.

And it comes at a good time.

(Read more: Cold weather could mean hot sales for these brands)

Despite the company reporting fourth-quarter comparable-store sales growth of 1 percent, same-store sales at its Urban Outfitters brand fell 9 percent and dramatically lagged portfolio standouts Anthropologie and Free People, which posted comparable sales gains of 10 percent and 20 percent, respectively.

Following its recent sales announcement, Stifel Nicolaus analyst Richard Jaffe attributed part of the weakness to fashion misses, calling the women's assortment "too narrow" and "not eclectic nor of the moment."

Citi analyst Oliver Chen said it's also likely the Urban stores experienced margin pressure due to severe winter weather. The brand also caters to a younger shopper than its Anthropologie label, which likely had a negative impact on its sales, Chen said. The retailer reports its full fourth-quarter earnings results Monday after the bell.

—By CNBC's Krystina Gustafson. Follow her on Twitter @KrystinaGustafs.

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