Lululemon Stock Vs Nike: Which Is Best?

Nike Inc (NYSE:NKE) is often used as an example in marketing classes and blogs of how to create homerun brands. This Beaverton, Oregon-based shoe and athletic apparel company has some of the most iconic ads featuring some of the most legendary athletes of the 21st Century. It built an empire that has never been matched, until Lululemon Athletica Inc (NASDAQ:LULU) came along.

Known for putting women in high-end yoga pants everywhere, this Canadian athletic clothing brand is recovering like COVID-19 never happened. Strong sales and an aggressive expansion plan have investors rushing to determine whether to buy Lululemon stock vs Nike.

We analyze both of these storied athletic brands to discover how everyone ended up wearing basketball shoes, jerseys, and yoga pants to sit on the couch.

If you’re looking to invest in athleisure, this is what you need to know.

Lululemon International Growth Could Be Huge

Although retail was hit hard by the coronavirus pandemic lockdowns, athletic wear went up. People in tough economic times seek values, not necessarily lower prices. Spending $100 for a pair of clean, durable pants that work with a variety of styles works for so many, especially while trying to keep in shape during quarantine.

In fact, Lululemon’s earnings announcement showed it grew revenue to $902.9 million for the quarter.

This is largely due to massive online sales growth that puts the company’s market cap in the range of $40-50 billion. And it’s only just beginning its international expansion, which will see the brand attempt to replicate its success in markets like India and China.

The market is sure to be turbulent for the remainder of 2020, and LULU could be a value Buy under $350 per share.

It’s considered by some analysts to have huge growth potential that outpace similar companies like Lularoe, which is plagued with problems and allegations.

Many believe it’s one of the best growth stocks in the 2020 retail sector. While some believe it already peaked, Lululemon is well on its way to becoming the next Nike and could even outperform it in some international markets. Let’s check out what pace the legend is setting.

Nike Double Digit Growth Continues

Nike’s stock is at an all-time high following the coronavirus pandemic, with a market cap exceeding $150 billion heading into the fourth quarter of 2020.

The company increased sales in China, while only experiencing a 1 percent dip in U.S. sales during its September earnings report.

It also has a strong digital business and a strong focus on limited releases that keep its inventory flowing to meet demand.

The company is experiencing double-digit growth in 2020, despite retail sales being devastated around the globe. This helped it outperform the S&P 500 in its recovery from the pandemic.

This is despite reporting a quarterly loss during its June earnings call. Investors who bought in at the dip are riding high, but that leads some to wonder how much more growth opportunity it has.

Because it’s such a large whale in its market, Nike is keeping its profit margins steady. It’s something smaller competitors are having trouble doing now that everyone’s competing to beat expectations after Covid. There are risks inherent to investing in either company though.

Lululemon Is Spending Heavily On Marketing

One of the problems Lululemon faces is in its pricing we discussed before. The company is spending heavily on marketing and its international expansion, and bulk materials pricing may take a hit this holiday season.

It’s also going to continue spending on infrastructure at a time when the rest of the retail sector is shrinking. The brand needs to keep winning in European and Asian markets, while avoiding potential trade wars.

Lululemon is heavily reliant on ecommerce, so the brick-and-mortar buildout is more to maintain its status symbol. It needs to maintain brand quality throughout the supply chain to ensure its drops, collaborations, and other releases hit the same way Nike’s do. In fact, let’s discuss some times Nike dropped the ball.

Risks of Buying Nike Stock

Much of Nike’s marketing relies heavily on star power, and these deals can backfire. In 2009, for example, the company partnered with fashion designer and musician Kanye West for the Nike Air Yeezy.

It wasn’t long before the fashion icon jumped ship to partner with rival Adidas. And Adidas took some wind out of Nike’s sails in the 2010s as fashion circled back to favor retro Adidas over the Nike Cortez rerelease.

Nike also took a hit with the coronavirus, proving it’s not invulnerable to changing market conditions. Several boycotts have been called for the brand in the wake of the Colin Kaepernick BLM drama, and the brand is no stranger to involving itself in controversies. It’s the company’s stances on social justice issues that’s driving it forward, but that strategy often backfires.

Still, Nike reigns supreme in the athletic footwear business, and everyone from Under Armour to Adidas and Lululemon is simply nipping at its heels.

Nike Vs Lululemon Stock: The Bottom Line

Both Nike and Lululemon outperformed the S&P 500 in their respective recoveries from the 2020 coronavirus pandemic. This is because athletic leisurewear that also functional and well made is still in demand in a world where everyone’s working and schooling from home. The need to stay healthy and fit trumps all politics leading into the 2020 election.

Although Nike is experiencing all-time highs, it has a target on its back. This gives Lululemon room to grow, if it can prove its international infrastructure spending is worth it.

Many Wall Street analysts believe Lululemon is a high growth potential investment that can far exceed Nike’s return to investors over the next decade. But that doesn’t make Nike a bad investment – in reality, investing in both may be a great way to diversify your portfolio.

---

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.