The fashion industry is in a new refresh cycle that could challenge hot clothing stocks like Lululemon Athletica (LULU) and resurrect iconic denim brand Levi Strauss (LEVI).

After years of declines, the fashion industry has seen a rebound in jeans, which have become more stretchy to suit current tastes. Cargo pants could be next to bounce back. Meanwhile, demand for athleisure wear and yoga pants appears to have peaked, forcing one-time upstarts to find new growth drivers. Lululemon, for one, is expanding into additional markets, betting that consumers and employers will embrace a paradigm shift in work wear.

The stakes are high for investors in clothing stocks. Lululemon stock shot up more than 7,000% from its 2009 low as athleisure shifted from the gym to city streets. Athletic clothing stocks Nike (NKE) and Under Armour (UAA) jumped into the trend later with their own leggings and tops. But those stocks saw a fraction of Lululemon's gain in the past decade. Could Levi Strauss be the next Lululemon as it re-imagines jeans with new materials?

A renaissance in jeans would bring them full circle in the fashion industry. For generations, no look was more American than denim. Iconic images of jeans-clad celebrities include angst-ridden rebel James Dean and man's man Burt Reynolds chewing a cigar while flashing his hairy chest. The teenage Brooke Shields famously purred, "You wanna know what comes between me and my Calvins? Nothing."

Millennials, Gen Z Swing Fashion Industry

Jeans kept evolving and remained a staple in consumers' shopping bags. But then Saturday Night Live notoriously mocked "mom jeans" in 2004 as a symbol of frumpiness. At the same time, yoga went from hippie to mainstream, and Lululemon stock went public in 2007. As millennials became a bigger consumer force, they followed younger icons like Taylor Swift and Kim Kardashian in adopting the new look.

Now the fashion industry pendulum may have swung the other way. Yoga pants are ubiquitous among soccer moms. Generation Z is coming of age, and retailers have noticed they prefer jeans.

Bookending Lululemon's stratospheric rise is Levi Strauss' return to public markets. In March, the clothing stock surged in its debut after its IPO priced above expectations amid heavy demand. Levi Strauss has since cooled off but remains above its IPO price of 17, unlike tech IPOs Uber (UBER) and Lyft(LYFT).

Lee and Wrangler jeans could make a comeback after their spinoff last month from VF Corp (VFC) into the newly listed Kontoor Brands (KTB). Analysts say denim is a specialized area that benefits from focused management. The spinoff gives Kontoor a leadership team that's quicker to adapt to trends and more likely to experiment.

Fashion Industry Reversal

U.S. sales of jeans fell 11% over the past five years, while overall apparel sales rose 10%, according to Euromonitor. But it projects U.S. jeans revenue will grow 5% to $17.5 billion by 2023, with global growth up 11% to $111.6 billion.

"We've kind of been at the start of a denim cycle for a couple of years," B. Riley FBR analyst Susan Anderson told IBD. "You can really see this within the teen retailers such as an American Eagle(AEO) or an Urban Outfitters (URBN) or even an Abercrombie (ANF), with them really calling out denim as being strong."

And while there is still a runway for growth for athleisure, momentum may be shifting in the fashion industry.

"Overall athletics, though, including athleisure and more fashionable streetwear, still continues to grow," Anderson said. "But definitely at much lower rates than what we had seen over the past decade, where consumers had been stocking their closets with all that."

Workplaces To Drive Denim Clothing Stocks

There are clear signs of renewed appetite for denim, says Robert Burke Associates CEO Robert Burke. He is a former president of fashion for Bergdorf Goodman and previously worked at Ralph Lauren (RL).

"Denim is in my mind having a resurgence, but coming back in a different way," he said. "No longer is the customer as willing to wear an uncomfortable pair of jeans, or a restricting pair of jeans, or the Japanese denim that's as stiff as a board and takes months to break in."

Burke sees business wear's fall from favor in the workplace as a key tail-wind for denim. He points to Goldman Sachs' "flexible" dress code announced in March. Previously, Goldman Sachs (GS) had been a pillar of tailored clothing and business suits.

"When I look at why these things happen, it happens usually in multiple categories," he said. "I think we saw it with the trend of casual footwear and athletic footwear being acceptable in the workplace. Whereas seven years ago, it was only acceptable in the gym."

Burke believes there is no going back from the trend toward more casual clothing at work. But if offices get too casual, he thinks employees may have to wear a dressier blazer with jeans.

Key For Clothing Stocks: The Joy Of Spandex

Levi Strauss CEO Chip Bergh has said the rise of athleisure in the fashion industry was a "throwdown moment," which was inspiration to make more comfortable clothing.

After years of stagnation, denim firms are offering fabrics that appeal more to shoppers used to the coziness of leggings.

American Eagle Global Brand President Chad Kessler told IBD the firm is introducing more comfortable, and flattering, denim.

"A great example of our innovation in fabrics is the American Eagle Ne(X)t level jeans, which provide a 360-degree stretch that lifts, shapes, supports and moves with you in every direction," he said.

Synthetic fibers like spandex have made jeans more flexible, comfortable and durable, says CFRA analyst Camilla Yanushevsky. American Eagle's online store even lets shoppers search for jeans by the level of stretch, she points out. Levi Strauss has attracted more women by investing in stretch fabrics as well, she adds.

"What is going on with denim is the technological improvements that they're making," Yanushevsky told IBD.

'Polarizing' Cargo Pants Next For Clothing Companies?

The current 1990s retro trend is another tail-wind for denim clothing stocks. That's especially the case for established brands like Levi's as well as Calvin Klein and Tommy Hilfiger, which are both part of PVH Corp (PVH).

Whether this means skinny jeans will go to the dustbin in favor of baggy jeans and bell-bottoms remains to be seen. But Burke highlights the latter as having the potential for a comeback in the fashion industry. And he sees another trouser that's likely to become a garment of choice.

"They have a polarizing effect, but cargo pants seem to be the next wave," he said. "We're seeing a lot of cargo pants on the runways and on the street. For some people, it's never gone away. And now it's back."

Lululemon Stretches Out In Fashion Industry

But athleisure is far from a spent force for clothing stocks.

In Levi's IPO prospectus, management cited "the introduction of lines of jeans, athleisure and casual apparel by well-known and successful athletic wear companies" as a threat.

Lululemon unveiled an ambitious vision for its future at its analysts' day in April. The firm plans to enter the athletic shoe market, double men's sales and digital sales, and quadruple international sales by 2023. China in particular is a focus of its overseas expansion plan.

The key for the firm is to maintain quality, rather than chase share in the fashion industry, according to B. Riley FBR's Anderson.

"As long as Lulu continues to invest in the product and keep quality in and manage the brand to be a healthy brand and not a promotional brand, they can continue to gain space and grow," she said.

New Fashion Industry Niche For Lululemon?

Lululemon is looking to broaden its offerings with its Office, Travel, Commute line of clothes and accessories. The line includes things like rain jackets, baggier trousers, purses, long-sleeve shirts and ponchos.

The company could even attempt to carve its own niche in denim, according to Burke.

"Lululemon has such a devoted consumer base that they have ways of growing," he said. "I can see a Lululemon jean personally. Because the brand value of Lululemon really resonates with the consumer."