With $51.6 billion in trailing-12-month sales and an iconic, globally recognized brand, Nike (NKE +0.49%) is certainly familiar to most investors. Its dominance in the sports apparel and footwear market is unmatched.
But the industry is characterized by intense competition. Businesses are trying to satisfy the constantly changing tastes and preferences of consumers across the world. In the past decade, a popular category that has ascended quickly is athleisure apparel. And alongside it, we've seen Lululemon Athletica (LULU +2.16%) become a major industry player.
For all its success over the years, Nike doesn't hold a candle to its younger rival except in one key area. Let's take a closer look at these two consumer discretionary stocks and see how they compare.
NASDAQ: LULU
Key Data Points
Where Lululemon wins the battle
Founded more than 30 years after Nike, Lululemon, which posted fiscal 2023 revenue of $9.6 billion, is a much smaller entity. However, its growth has been truly spectacular. That 2023 sales figure was about 200% higher than five years earlier.
Lululemon has done a great job at transitioning from a brand known purely as a seller of women's yoga attire to a highly regarded men's and women's athletic clothing provider. The business is now in the footwear market as well. Looking ahead, it's easy to believe these trends will continue because there is a huge opportunity to expand internationally.
Even during what has been a difficult time for consumer spending, the company reported a 16% revenue gain in its fiscal fourth quarter, and executives believe an 11%-plus increase is likely for the current fiscal year.
Besides its growth, Lululemon bests Nike in the profitability department. In the past five years, the former's gross and operating margins have both averaged much higher than the latter's, an indication of Lululemon's premium status in the industry.
Nike's greatest attribute
Lululemon certainly deserves credit, but so does Nike. It is the undisputed leader in the industry, with a long and successful history of innovative product designs that resonate with consumers across the globe.
I think the single most impressive skill that Nike possesses is its marketing prowess. High-profile athlete endorsements, coupled with a superior ability to tell stories that exude a winning mentality, have created a powerful brand presence. It's precisely this brand recognition that makes Nike the industry juggernaut that it is today.
Having been around for decades in the fashion sector is a true testament to this brand. Consumer tastes and preferences are constantly changing, yet Nike has remained relevant over the years. This longevity makes me believe that the company will still be around 50 years from now.
NYSE: NKE
Key Data Points
Which stock should you buy?
Both of these stocks have taken a hit recently. Since Lululemon revealed a weaker-than-expected outlook, its shares have fallen 19%. And after Nike did the same thing, its stock is down 7% following its latest earnings update. Investors have the chance to buy these quality businesses on the dip.
But I think one stands out as the clear winner. I admire Nike's long history in the industry, but right now I believe Lululemon is the better investment opportunity. As of this writing, its shares trade at a forward price-to-earnings ratio of 27.4. That's just a slight premium to Nike's multiple of 25.7.
But for this modest premium, investors get to own a company that is likely going to grow revenue and earnings at a faster pace than Nike over the next few years. Consequently, Lululemon offers the potential for higher investment returns.
