Nike, Inc. (NKE) is the biggest and most valuable sports apparel manufacturer in the world, with a 25.1% global apparel market share in the April-June quarter. Its brand value was $34.8 billion as of January 1st, 2020. Lululemon Athletica, Inc…
(LULU – Rated “C” – Neutral) on the other hand, is a prominent competitor of NKE, with a brand value of $9.67 billion. LULU is a leading sports apparel brand in Canada, and is currently ranked 4th most valuable company in the world in terms of brand value.
Both the stocks have generated significant returns over the past five years. While NKE returned 103.6% over this period, LULU gained 532.8%. In terms of year-to-date performance as well, LULU is the clear winner with 37.6% returns versus NKE’s 22.7%. But which of these stocks is a better buy now? Let’s find out.
On July 22nd, NKE announced several leadership changes to make the brand digitally empowered and support its Consumer Direct Acceleration (CDA) strategy. With digital sales becoming immensely popular in the current economic scenario, this move can help NKE branch out to untapped markets.
LULU acquired a home fitness company named Mirror to provide a live interactive workout platform to its customers. This $500 million acquisition is a part of LULU’s Power of Three growth plan. It also resumed its share buyback program, which was previously halted due to the pandemic. The company is also planning on manufacturing footwear, as part of its omnichannel expansion program, which is expected to boost its profits in the upcoming months.
Recent Financial Results
NKE’s robust recovery as a result of its accelerating brand momentum and digital sales since the beginning of the pandemic was reflected in its fiscal first quarter (ended August 2020) results. Its direct sales improved 12% year-over-year to $10.60 billion, and brand digital sales increased 82% from the same period last year. EPS increased 10% from the year-ago value to $0.95. Its inventory increased 15% from the year-ago value to $6.70 billion.
LULU reported a 2% year-over-year increase in its net revenue to $903 million in the second quarter ended June 2020. Direct-to-customer revenue increased 155% from the same period last year to $554.30 million. Gross profit increased 1% from the year-ago value to $485.90 million. Inventory increased 36% year-over-year to $672.80 million at the end of the quarter.
Hence, NKE is in an advantageous position here.
Past and Expected Financial Performance
NKE’s revenue grew at a CAGR of 2.8% over the past 3 years, but the CAGR for its EPS over the same time period was negative 10.4%.
The market expects the company’s revenue to increase 12.2% in the current year and 11.3% next year. NKE’s EPS is expected to grow 78.1% in the current year and 28.8% next year. Moreover, its EPS is expected to grow at a rate of 25.1% per annum over the next five years.
On the other hand, LULU’s revenue and EPS grew at a CAGR of…
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