The sportswear giant Nike (NKE +2.83%) and yoga-inspired apparel specialist Lululemon Athletica (LULU +4.57%) have both seen their share prices reset over the past year as investors reassess the premium athletic wear's potential in a market with fast-changing consumer tastes and tariffs. Nike is struggling in China and its important digital channel, while Lululemon is dealing with softer U.S. traffic.
With both stocks down sharply recently, is either worth buying on the dip? Here's a close look at both companies and their stocks' valuations to see which one is the better buy today.
Image source: Getty Images.
Nike's underwhelming turnaround efforts
Nike's recent financial performance shows how difficult the environment has become for athleisure companies. Nike's fiscal 2025 (the 12-month period ending in May of this year) revenue fell 10% year over year to $46.3 billion. Net income for the period declined 44% to $3.2 billion, and earnings per share dropped 42% to $2.16. Heavier promotions and higher costs, as the company doubled down on a turnaround plan, squeezed profitability.
Nike's first quarter of fiscal 2026 was significantly better than its full-year fiscal 2025 results, but it still fell short of a full recovery. First-quarter revenue in fiscal 2026 grew about 1% year over year. But the results included a 10% decline in Greater China. Additionally, its digital channel remained under pressure, evidenced by a 4% year-over-year decrease in its Nike Direct revenue -- a channel that includes sales from its Nike-owned retail stores and sales through its digital platforms.
NYSE: NKE
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Tariffs add another headwind.
"[W]e now estimate the gross incremental cost [of tariffs] to Nike on an annualized basis to be approximately $1.5 billion," Nike CFO Matt Friend said during Nike's latest earnings call, raising the estimate from $1 billion just three months earlier.
Despite these challenges, the stock is not cheap. Nike trades at about 32 times earnings per share -- a rich valuation multiple for a business struggling to gain momentum with consumers.
Lululemon's global momentum
Lululemon's business has its own issues, especially in North America. But its growth profile looks healthier than Nike's. In the second quarter of fiscal 2025, the apparel company's revenue rose 7% year over year to $2.5 billion. Its international revenue jumped 22% year over year, while the Americas revenue grew just 1%, showing how much of the growth now comes from markets outside the United States.
"While we continued to see positive momentum overall in our international regions in the second quarter, we are disappointed with our U.S. business results," CEO Calvin McDonald said in the company's second-quarter 2025 earnings release.
NASDAQ: LULU
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Guidance, however, has come down as U.S. demand struggles and tariffs bite. In September, Lululemon cut its full-year outlook, now expecting revenue between $10.85 billion and $11 billion (2% to 4% year-over-year growth, or 4% to 6% growth when excluding the 53rd week in 2024). Management also estimates roughly $240 million of gross profit headwinds from higher tariffs and the loss of duty-free thresholds on smaller shipments.
One stock looks like a bargain
Valuation is ultimately the deciding factor when comparing the two companies. On this front, Lululemon is the better buy.
Lululemon's stock's dramatic reset lower this year has significantly compressed its valuation multiple. As of this writing, Lululemon stock has a price-to-earnings ratio of less than 12 -- near its lowest price-to-earnings ratio in more than two decades and roughly one-third of Nike's valuation as measured by the same metric.
Of course, there's a risk that Lululemon fails to reignite U.S. demand or that tariff pressure remains a significant burden. If both of these headwinds persist, it could sap cash flow needed to fund international store openings and digital investments.
But even in light of these risks for Lululemon, I'd argue it's still the better buy of the two stocks. Nike's valuation leaves little room for further disappointments while the company works through demand and tariff issues, whereas Lululemon's stock already embeds a pessimistic view of its recent missteps even as the company posts solid growth internationally. For investors wanting exposure to high-end athletic and athleisure wear, Lululemon's combination of robust international growth and a significantly lower earnings multiple makes it the more compelling choice today.
