Crox vs Lululemon Stock: Fashion trends have changed dramatically in recent decades, and some of the hottest apparel retailers have been unable to keep up.
In 2019 alone, New York icon Barney’s closed its stores, Sears and Kmart continued shuttering unprofitable locations, and Payless Shoe Source went bankrupt.
With so much bad news on the apparel front, it’s no wonder investors are thinking twice before entering this market.
The biggest issue for traditional fashion brands – and the biggest opportunity for today’s apparel leaders – is the move away from separate wardrobes for the day-to-day events and activities. Once upon a time, formal business attire was a must at work, and teens needed the latest in trendy clothing to keep up their reputations at school. Leisure time had its own dress code, and there was a separate category for special occasions and celebratory events.
Now, most consumers are intent on being comfortable in their clothes, and they want mix-and-match wardrobes that can handle work, school, and social activities. Not to mention StitchFix [NASDAQ: SFIX] that provides fashion consultations to consumers.
Few apparel companies have found a perfect balance to meet the needs of this niche. Those that have are rewarding investors for their faith – but can they continue to profit? And if so, which stock is the best buy? Here is a look at two current leaders in apparel: Crox, maker of Crocs, and Lululemon.
Is Lululemon Stock a Buy?
Lululemon [NASDAQ: LULU] is in an enviable position. While other apparel companies are closing down stores and trying to survive bankruptcy, Lululemon is growing.
It has even coined a new term for its product line: athleisure. With this term, it found a niche market that falls in the open space between sporting goods companies like Nike [NYSE: NKE] and leisure-wear makers like DKNY.
Certainly, Nike [NYSE: NKE] and peers make sportswear that can meet the needs of casual apparel consumers, but they don’t market to that group. DKNY and others in this category have a line of sportswear to complement their leisurewear offerings, but it isn’t a core area and so lacks innovation.
Lululemon caters to casual athletes who need top of the line gear that can go from yoga class to picking up the kids at school without missing a beat.
Lululemon [NASDAQ: LULU] is pursuing a comprehensive growth strategy, which has a positive impact on bottom-line results. Management insists on constant innovation, and the company regularly introduces new products that incorporate the most advanced activewear features.
Lulu has also welcomed the trend towards e-commerce, and it has carefully developed a variety of channels that are seamlessly integrated. The customer experience moves between online shopping, in-store shopping, and customer service through social media easily and effectively – a must in the increasingly digital retail environment.
Finally, Lululemon [NASDAQ: LULU] is working hard to create a commanding international presence. It is carefully evaluating new markets and making plans for entry.
The current goal is to quadruple international sales by 2023 – and based on the results that have already been reported, it appears Lululemon is well-positioned to achieve its ambition. For example, sales in Europe are up 35 percent as of the second quarter, and things are looking good in the Asia-Pacific region.
The second quarter 2019 earnings call was all good news, which boosted share prices immediately. In fact, they reached an all-time high, for a total gain of 70 percent so far this year.
Digital revenues went up by 31 percent, and store comps increased by 11 percent. Lululemon customers are loyal and engaged, thanks to the company’s efforts to create relationships through yoga classes and other athletic/athleisure events.
Overall, Lululemon’s earnings per share went up by 35 percent to $0.96 per share, which exceeded expectations by $0.07. With the company well-positioned to expand further, investors should consider this stock a buy.
Should You Invest in Crox Stock?
The Crocs tagline is telling: Come as you are. In short, Crocs [NASDAQ: CROX] has tapped into the current consumer mood. With an expanding line of casual feel-good footwear, Crocs offers an opportunity to keep up with current fashion trends without sacrificing comfort.
Crox, the makers of Crocs, has seen steady growth in revenues and profits since the company debuted in 2002. It’s introduction of form-fitting Croslite into footwear was instantly popular, and to date more than 600 pairs of shoes have been sold worldwide.
Crox stock did experience a temporary decline in the first part of 2019, but good financial news drove stock prices up by 25 percent in September. When this figure is compared to the S&P 500’s mere 2 percent increase, Crocs [NASDAQ: CROX] results are even more impressive.
For the second quarter of 2019, Crocs [NASDAQ: CROX] reported revenue gains of 9.4 percent year over year, bringing the total to $358.9 million. This increase is credited in part to a 9.4 percent rise in wholesale revenue, along with significant growth of 18 percent from the e-commerce channel.
Comparable store sales went up by 11.8 percent, which analysts say shows the brand’s sticking power among current Crocs enthusiasts.
Part of the reason for the jump in share prices was the fact that Crocs exceeded analyst expectations in terms of net income. Adjusted net income went up by 3 percent to $42.6 million, which translates to $0.59 per share. This was markedly above analyst projections of $0.45 per share.
Going forward, management has expressed strong optimism, and the 2019 revenue growth forecast went up. During the second quarter earnings call, business leaders projected revenue growth between 9 percent and 11 percent year over year, up from earlier estimates of 5 percent to 7 percent.
In short, the company has indicated that the second half of the year will outpace the first half by quite a bit, which is good news for those who invest now.
Crox vs Lululemon Stock: The Bottom Line
Both of these apparel companies have unlocked the secret to attracting today’s consumers, and both are in a strong position to grow in coming months.
Investors can confidently buy stock in either, understanding that the usual investment risks apply. If it is necessary to choose one over the other, Lululemon pulls ahead slightly – it appears to have a bit more growth opportunity that Crox.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.