Under Armour (NYSE:UA) (NYSE:UAA) was once considered "the next Nike (NYSE:NKE)," but it lost over 70% of its market value over the past five years as it struggled to keep pace with Nike and adidas (OTC:ADDYY) in the athletic footwear and apparel market.

During the same period, Lululemon Athletica's (NASDAQ:LULU) stock surged nearly 450% as the yoga and athleisure apparel retailer dazzled investors with its robust comparable store sales growth. Let's see why investors should forget about Under Armour and simply stick with Lululemon as a "best in breed" play in the athletic apparel market.

A woman wears athletic apparel outside.

Image source: Getty Images.

Stronger revenue growth

Back in 2015, Under Armour boldly predicted it would generate $7.5 billion in annual revenue by 2018. But it only generated $5.2 billion in revenue in 2018, and its revenue rose 1% to $5.3 billion last year.

Under Armour's grand plans collapsed because it couldn't keep pace with Nike and adidas. Both rivals opened more brick-and-mortar stores, expanded their e-commerce platforms, and launched aggressive marketing campaigns across Under Armour's core North American market. Under Armour tried to offset that slowdown by expanding overseas, but its growth in promising markets like Asia couldn't fully offset its domestic declines.

In the first half of 2020, Under Armour's revenue plunged 32% year over year to $1.6 billion as the pandemic disrupted its supply chain and shuttered brick-and-mortar stores. Under Armour hasn't offered any guidance for the second half yet, but analysts expect its revenue to decline 26% this year and rebound 22% next year.

A group of women attend a yoga class.

Image source: Getty Images.

Lululemon's revenue rose 24% to $3.3 billion in 2018, then climbed another 21% to $4 billion in 2019. It attributed that growth to the expansion of its direct-to-consumer channels, the growth of its menswear business, sticky brand loyalty from community events like free yoga classes, and its ability to maintain its premium appeal with limited promotions.

In the first half of 2020, Lululemon's revenue dipped 6% year over year to $1.55 billion, as it partly offset its pandemic-related closures with online sales. More importantly, Lululemon reiterated its commitment to its "Power of Three" growth plan, which aims to generate double-digit average annual revenue growth through the end of 2023 by doubling its men's revenue, doubling its digital revenue, and quadrupling its international revenue.

Lululemon didn't provide exact guidance last quarter, but analysts expect its revenue to rise 4% this year before accelerating to 27% growth next year.

Stronger margins and earnings growth

As Under Armour's sales growth decelerated, it focused on boosting its margins by selling fewer products to off-price retailers and streamlining its supply chain. As a result, its gross margin expanded 180 basis points to 46.9% in 2019 and it generated a net profit of $92 million -- compared to a loss of $46 million in 2018.

That progress was encouraging, but the pandemic pounded away those profits and caused the company to post a whopping net loss of $773 million in the first half of 2020. Analysts expect its bottom line to remain in the red for the full year, before possibly returning to profitability in 2021.

Lululemon's gross margin expanded 70 basis points to 55.9% last year, thanks to a better mix of higher-margin products, and its net income surged 33% to $646 million. In the first half of 2020, Lululemon's net income declined 48% year over year to $115 million, mainly due to temporary store closures and the higher costs of fulfilling online orders.

Wall Street expects Lululemon's earnings to decline just 15% this year, then rebound strongly with 53% growth next year. In other words, Lululemon could fully recover from the pandemic next year as Under Armour desperately treads water with cost-cutting measures.

Stick with the high-growth winner

Under Armour is still struggling, and the departures of its chief designer and CEO last year don't inspire much confidence in a quick turnaround. It also faces a Securities and Exchange Commission probe over potentially inflated sales in 2015 and 2016, while its stock looks ridiculously overvalued at over 70 times next year's earnings.

Lululemon's stock trades at nearly 80 times forward earnings, but its robust revenue and earnings growth, clear plans for the future, and resilience throughout the pandemic all justify that premium valuation. Therefore, Lululemon should continue to outperform Under Armour for the foreseeable future.