If you're an investor looking for new opportunities, Walmart (WMT 0.48%) and lululemon athletica (LULU -0.48%) are both companies that have been good to investors over their lifetimes. Lululemon was a COVID-19 loser, but sales are rising, and shares have returned a whopping 460% over the last three years. Walmart was a COVID-19 winner, but shares have returned a less-astounding 77% over the last three years. Which one is the better retail stock to buy today?

Two leading companies

Although Lululemon is only 20 years old, it's captured the hearts of fitness enthusiasts and plenty of market share. Fiscal 2019 revenue came in at $4 billion, up from $3.3 billion in 2018. But there's lots of room to grow. The athleisure market is expected to reach $257 billion by 2026, which means a 6.7% compound annual growth rate (CAGR).

Woman rolling out a yoga mat.

Image source: Getty Images.

What's the secret of Lululemon's success? The company has developed patented fabrics in styles that customers love, and it's created a community for people living the "sweat life," with online classes, training guides, and celebrity endorsements. More importantly, Lululemon is in touch with contemporary shopping trends, and operations are supported by a strong omnichannel backbone. E-commerce increased 157% in the second quarter ended Aug. 2, and made up 61% of total sales. In the fourth quarter, which ended before the pandemic, e-commerce grew a comfortable 41%, and the recent upgrades Lululemon made in its digital options meant it was ready when the pandemic hit. Customers continued to shop digitally in the second quarter, despite 97% of stores being fully open.

Walmart is in many ways the opposite of Lululemon. It's the largest retailer in the world, with over $500 billion in annual sales. Growth was slow before the pandemic, but sales soared over the past six months because it's an essential retailer. Not only did stores stay open, but digital really took off and customers took advantage of the company's broad omnichannel services, and digital grew 97% in the second quarter ended July 31.

Even in a great quarter, though, Walmart's growth doesn't match Lululemon's, as seen in the chart below. These metrics indicate that Walmart's superior performance is related to the novel coronavrius-induced lockdown, and lululemon's stock is performing better regardless.

WMT Revenue (TTM) Chart
Data by YCharts.

Walmart's great sales figures meant that despite bonuses and investment in safety measures, earnings increased. Lululemon was not so lucky, and its earnings per share decreased in the second quarter to $0.66 from $0.96 in 2019.

Entering new territory

Lululemon faces plenty of competition, both from large rivals such as athletic apparel titan Nike (NKE -0.84%) and Gap's Athleta as well as niche brands that serve committed gym-goers. Its styles are easily replicated by other brands, especially because they don't change frequently. More and more companies are getting in on the athleisure trend, such as Target (TGT -2.43%) and American Eagle Outfitters (AEO -1.63%)

However, Lululemon is taking steps to secure its place as yoga king. It's bringing out new sizes, new fabrics, and new products. "We have only just begun to leverage our work within the Science of Feel innovation platform, and we have ample ways to expand our key categories," CEO Calvin McDonald said. Lululemon is also planning to open at least 30 stores this year, which are still an important piece of the omnichannel picture.

Walmart delivery box.

Image source: Walmart.

Lululemon acquired personal fitness company MIRROR in June, as McDonald said, to "enhance our digital and interactive capabilities, and deepen our roots in the sweatlife." The partnership is meant to solidify the seamless, omni system, and it opens up exciting directions for the company to move into and increase sales. Lululemon has taken itself from a small, niche company and proven that it has the ability to be a real retail force.

Walmart is moving into new areas as well. It's turning pilot stores into health clinics and community centers, and even started offering health insurance plans, charting new growth avenues. Its recent investments in TikTok, along with partner Oracle (ORCL -1.23%), show that despite its retail dominance, there's still space to expand its presence. 

Its main threat, Amazon.com (AMZN -0.09%), is the master of online retail, with over 150 million Prime members. In September, Walmart launched its own subscription service, Walmart+, and somewhere around 36 million people signed up for it in the first two weeks.

Is past performance indicative of the future?

Lululemon shares are trading at more than 80 times trailing-12-month (TTM) earnings, which is not exactly reasonable, but is down from over 200 just a few months ago. Shares are up 50% year to date as of this writing. Walmart shares are trading at a humbler 23 times TTM earnings, and are up a nice 20% year to date.

Walmart is a great stock, and with so many activities in the pipeline, it's a safe bet for continued growth. It also pays a dividend. But Lululemon has high momentum, and with vertical and horizontal opportunities, its stock is likely to outdo Walmart's in the near term, and is therefore the better buy today.