Nike (NKE 1.30%) and Lululemon Athletica (LULU 3.24%) are both struggling to find traction in a choppy consumer spending environment. Both stocks are trading about 63% off their previous highs. But shares of Nike have held up better over the last 12 months, down 13% compared to Lululemon's 50% share price decline.
While both businesses are experiencing pressure on revenue and earnings from tariffs and soft demand, there is one reason why Lululemon can orchestrate a quicker turnaround than its larger rival.
Image source: Getty Images.
Why buy Lululemon over Nike stock?
Nike's handicap is size. The company operates multiple brands, sports products, and geographies. This diversity can reduce business risk, but it's also slowing its recovery.
NYSE: NKE
Key Data Points
In the most recent earnings report, management acknowledged that its comeback is moving at "different speeds," with sales in Greater China declining 16% year over year last quarter. Nike says it's in the "middle innings" of its turnaround, suggesting it could take another year or so to see stronger results.
NASDAQ: LULU
Key Data Points
Lululemon has a faster lane to recovery. Revenue rose 7% year over year last quarter, compared to Nike's 1% increase. Lululemon management noted that it sold excess inventory during the holiday season, putting it in a leaner position heading into the spring product refresh.
The healthy inventory position could allow Lululemon to tighten up margins in the near term by avoiding promotional sales. All this makes Lululemon shares a better value, trading at a forward price-to-earnings multiple of around 15, well below Nike's 42.
