Competitive Comparison: Under Armour versus Lululemon for Optimal Purchasing Decision
In the competitive world of athletic apparel, Lululemon Athletica is expected to outshine Under Armour in the coming years. This prediction is based on Lululemon's stronger brand positioning, higher expected returns, and more robust market share growth.
In 2019, Calvin McDonald took the helm as CEO of Lululemon and presented the Power of Three plan, aiming to generate double-digit annual revenue growth by 2023. This ambitious plan includes doubling Lululemon's men's revenue, doubling its digital revenue, and quadrupling its international revenue.
Lululemon's strategy seems to be paying off. Despite pandemic-related retail closures, the company continued to open new stores and generated 44% of its revenue from its direct-to-consumer business. In 2021, Lululemon's revenue increased 42% to $6.3 billion, marking a significant growth compared to Under Armour's 27% rise to $5.7 billion in the same year.
Lululemon's stock has also reflected this success, skyrocketing nearly 400% over the past five years. In contrast, Under Armour's stock has plunged nearly 60% over the same period.
Under Armour, on the other hand, has struggled to keep pace with industry giants like Nike and Adidas in the athletic footwear market. The company's troubles started long before the pandemic, as evidenced by its adjusted net loss of $120 million in 2020 and a mere 1% revenue growth in 2019.
The Securities and Exchange Commission (SEC) launched a probe into Under Armour's accounting practices, further adding to its woes. Despite a 27% revenue rise to $5.7 billion in 2021, Under Armour's growth prospects appear more modest compared to Lululemon's.
Lululemon's success can be attributed to its strong brand appeal and high-quality products. Its gross margin rose 170 basis points to 57.7% in 2021, reflecting its profitability. Lululemon's forward price-to-earnings ratio is 30, significantly higher than Under Armour's forward earnings ratio of 14.
However, Lululemon's higher valuation might limit its upside in the current market. Yet, it remains a better investment than Under Armour, which is stabilizing but has likely passed its high-growth period.
In April 2022, Lululemon launched a new five-year growth plan, Power of Three x2, aiming to nearly double its annual revenue to $12.5 billion by 2026. If successful, this plan could further widen the gap between Lululemon and Under Armour.
While Lululemon faces minor competition from smaller brands like Gap's Athleta, it doesn't face as many direct competitors as Under Armour. This competitive landscape, combined with its strong brand and financial performance, makes Lululemon a promising investment for the future.
In contrast, Under Armour's challenges seem to be more profound. Despite efforts to turn things around, the company's valuation remains cheaper but with lower return prospects. Investors seem to be willing to pay a premium for Lululemon because it delivers higher growth potential and profitability compared to Under Armour.
In summary, Lululemon's expected outperformance versus Under Armour comes down to its superior growth prospects, stronger brand appeal, and higher financial returns, which justify investors paying a higher P/E ratio for Lululemon’s stock. Under Armour's lower valuation reflects more modest growth expectations.
- In the realm of fashion-and-beauty and lifestyle investments, Lululemon's stocks have proven to be a smart choice for investors, skyrocketing nearly 400% over the past five years.
- Lululemon's finance strategy, as outlined in its Power of Three plan, aims to generate significant revenue growth, with targets like doubling men's revenue, digital revenue, and international revenue by 2023.
- In the competitive world of business, Lululemon is predicted to outshine Under Armour not only in athletic apparel but also in overall financial returns and market share growth.
- Despite challenges faced by both companies in the sports industry, Lululemon's strong brand, financial performance, and growth prospects make it a more attractive investment compared to the more modestly growing Under Armour.
