Nike vs Lululemon Stock: Which Is Best?

Nike vs Lululemon Stock: Formal business attire is out, and athletic wear is in, whether consumers are working out, working in an office, or working from home. The name of the game is comfort and versatility – and two brands top the list for both: Nike and Lululemon.

Nike has been a major player in footwear and athletic apparel since it was founded in 1964, and it has always bested the competition. It’s the largest sportswear company in the world, with annual sales of more than $45 billion. That’s nearly double the revenue of the runner-up, Adidas, which brings in $23.5 billion per year.

Lululemon, which launched in 1998, is a relative newcomer to the athletic wear space. Nonetheless, it has climbed to sixth place on the list of the world’s largest sportswear brands. Lululemon’s annual revenue is roughly $3.3 billion, and it is rapidly closing in on the number-five spot.

Investors who want to add athletic apparel to their portfolios have a tough choice – Nike vs. Lululemon stock: which is best?

After all, Nike is an established company with a long history of success, but it doesn’t offer much in the way of growth. Nike stock went up less than 70 percent over the past five years. Meanwhile, Lululemon stock increased more than 435 percent during the same period.

While Lululemon doesn’t offer investors the same stability that comes with Nike stock, is it a better buy?

What Is The Future Of Sportswear?

Once upon a time, fashionable women wouldn’t step foot out of the house in yoga pants. Now, they are a wardrobe staple, and they are appropriate for nearly every occasion.

New materials and attractive, flattering designs have transformed the reputation of workout gear, and activewear is now socially acceptable for everyday activities.

More importantly, it is a must-have for the increasing number of consumers participating in activities like team sports, virtual fitness classes, and old favorites such as running, biking, and hiking.

The size of the sportswear market might not be increasing as dramatically as the tech industry, but it is getting bigger. Researchers and industry experts have projected it will expand at a consistent compound annual growth (CAGR) of 5.8 percent through 2028. That’s impressive when considered against the total global activewear market of nearly $304 billion for 2021.

Women are responsible for roughly 60 percent of global sportswear sales, and forward-thinking companies are developing product lines to meet unique needs.

For example, maternity apparel is becoming a big business opportunity. Women are also buying more activewear for kids, and the most prominent brands are making moves to capture as much of those market segments as possible.

Both Nike and Lululemon have launched product lines that cater to women and children, which puts them in a strong position to grow their respective businesses. However, Lululemon has an edge when it comes to this critical market segment. Though it has a selection of menswear, its products are primarily designed for women and girls.

Will Nike Stock Recover?

Nike stock hit an impressive all-time high when the market went up in November 2021. However, it has been downhill from there. Share prices dropped almost 45 percent in the past year. The stock hit bottom on September 30, 2022, and now it appears to be gradually drifting up again.

Nike’s trouble is directly related to its years of success. The company is struggling to navigate supply chain disruptions, inflation, rising fuel costs, and generally negative consumer sentiment while managing a large amount of inventory.

The company’s ability to acquire and hold more inventory due to its large size and extensive resources contributed to the predicament.

It looks like the only way out is to mark down merchandise. That means Nike’s gross margin, which was already uncomfortably low, will go lower. Business leaders project that the fiscal 2023 gross margin will drop between 200 and 250 basis points.

The good news is that this pain is temporary, and Nike has the resources to weather the storm. Better still, its digital and direct-to-consumer channels are growing well, which aligns with Nike’s long-term strategy. Overall, there is every reason to believe Nike stock will recover and achieve new highs within a reasonable timeframe.

Will Lululemon Stock Go Up?

Lululemon stock also struggled in the 12 months following a November 2021 peak, but its losses weren’t as deep as Nike’s. In the last year, Lululemon stock is down roughly 28 percent, and it appears to be ticking up again – albeit slowly.

In the meantime, Lululemon continues to gain market share faster than any other activewear brand and is achieving its strategic goals well ahead of target dates. It doubled its digital revenue and men’s line revenue more quickly than expected, and the company is all but certain to hit its goal of quadrupling international revenue ahead of schedule.

Lululemon’s new five-year plan includes goals like doubling digital and men’s line revenue again – this time from 2021 levels. It also intends to quadruple international revenue again, which would move the company up several places on the list of top sportswear brands.

There is every reason to believe Lululemon will achieve these goals with the same ease that it managed the first set – and if it does, Lululemon stock will go up.

Lululemon vs. Nike Stock: Which Is Best?

The decision between Lululemon stock and Nike stock comes down to the goals of individual investors. Both companies are likely to grow over time, and given its history, Nike is more likely to show strong long-term results.

Nike is a safe, reliable choice that makes sense for investors who prefer to avoid risk, even when that means reduced returns.

On the other hand, Lululemon is poised for substantial expansion in the short and medium term. It is at an earlier stage of the growth cycle, and there is more room for share prices to increase quickly.

Yes, Lululemon stock is riskier than Nike stock. The company simply doesn’t have the same brand power that Nike enjoys. However, the higher risk may be worthwhile for investors with shorter horizons and more aggressive growth goals.

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