![]() Lululemon Has Seen Better Margin GrowthĪs mentioned above, Lululemon has a significantly higher gross margin than Nike. The company blamed Omicron, supply problems, and staff shortages for this weaker performance.Ģ. Similarly, Lululemon is expecting its net revenue to come in at the low end of its previously forecast range of $2.125 billion to $2.165 billion in Q4. Moreover, commodities prices from the Russia-Ukraine conflict will also clip sales for Nike, particularly in Europe. In addition, increased investments in air freight to overcome supply chain and inventory challenges will also increase costs significantly in the second half. It should be noted that almost 51% of Nike’s footwear and 30% of its apparel is made in Vietnam. In the upcoming quarter, supply chain issues that hit its factories in Vietnam and Indonesia will continue to pressure Nike’s top line. That said, Lululemon is finding strong demand in categories like outerwear and menswear, and it has only started tapping the potential in markets like China. While Nike saw its gross margin increase 280 basis points to 46% in the recent quarter - driven by margin expansion in the NIKE Direct business - it was still roughly 10 percentage points lower than its rival Lululemon with a gross margin of 57%. ![]() Lululemon’s y-o-y revenue growth was driven by a 28% increase in North America and a 40% increase internationally, whereas Nike saw falling revenues in Greater China (-20% y-o-y) and the Asia Pacific & Latin America (-8%), while North America (+12%) and Europe, the Middle East, & Africa (EMEA, +6%) delivered growth during the quarter. While global supply chain woes have severely hurt apparel businesses, Lululemon appears to be in a better place than Nike. ![]() Lululemon’s top line grew 30% year-over-year (y-o-y) to 1.5 billion in its most recent quarter (Q3 2021), whereas Nike’s revenues grew marginally to $11.4 billion during the same period (Q2 2022). Parts of the analysis are summarized below. Our dashboard Lululemon vs Nike: Industry Peers: Which Stock Is A Better Bet? has more details on this. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Lululemon’s premium valuation should not keep you away from investing in this high-performing stock, which has demonstrated growth in revenues while raising its profit margins in the past few years. This is based on comparing the revenue growth and operating margins for the two companies over recent years. While Lululemon’s stock appears overvalued compared to Nike’s stock, given the notable mismatch in their current P/S multiples, we still believe it is a better pick between both of the companies. But how is Lululemon’s stock priced compared to Nike’s stock? Lululemon trades at about 6x trailing revenues, compared to 4x for Nike. While store closures and costs did weigh on both companies during the initial lockdowns of 2020, they still benefited from growing digital sales. Both companies benefited from the stay-at-home orders as customers favored athleisure and comfortable clothing for spending more time at home during the ongoing pandemic. ![]() (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images) SOPA Images/LightRocket via Getty Imagesĭespite a higher valuation, we think that Lululemon’s stock (NASDAQ: LULU) currently is a better pick compared to Nike’s stock (NYSE: NKE), given its better revenue and margins growth. BRAZIL - 1: In this photo illustration a Lululemon Athletica logo seen displayed on a.
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