The popular athletic apparel retailer Lululemon Athletica Inc. (LULU) has been one of the best performers in the athleisure sector during the coronavirus pandemic, which boosted the popularity of home workouts with an accompanying boost in demand for athleisure apparel. However, LULU’s stock has lost 2.4% year-to-date because it is struggling to keep pace with strong competitors in the athletic footwear and apparel market.
With retail locations currently operating with tight capacity restrictions in certain markets of North America, Asia, and Europe, LULU’s momentum seems to have slowed somewhat. In fact, the stock is trading at a premium valuation despite the company merely meeting its projected growth targets rather than exceeding them.
In comparison, LULU’s competitors–NikeInc. (NKE) and Foot Locker, Inc. (FL)–have been witnessing stronger revenue growth, while trading at relatively lower valuations. Hence, we think these two stocks are better positioned than LULU for the near- to mid-term.
Nike, Inc. (NKE)
As the world’s largest supplier and manufacturer of athletic shoes, apparel and other sports equipment, NKE has worked its way to the top through constant innovation and strong customer engagement.
The company recently announced the launch of Nike Dunk Low and Dunk High sneakers with new colorways. They have already been released in Greater China. Also, the company’s Converse x Concepts, Southern Flame All Star BB Evo and Chuck 70 sneakers, were launched on January 28 in Boston and New York. These new launches should boost NKE’s cash balance substantially.
NKE’s revenue has increased 9% year-over-year to $11.24 billion in the fiscal second quarter ended November 30, 2020. This revenue increase is attributable primarily to double-digit growth in direct sales and growth in Sportswear. The company’s net income rose 12% from the prior-year quarter to $1.25 billion, while its EPS grew 13% from its year-ago value to $0.80. Its gross profit increased 7% year-over year to $4.85 billion over this period.
A consensus EPS estimate of $0.51 for the next quarter ending May 31, 2021 represents a 200% increase year-over-year. The consensus revenue estimate of $10.31 billion for the next quarter represents a 63.3% increase from the same period last year. The stock has gained 36.9% over the past year.
In terms of forward non-GAAP p/e, NKE is currently trading at 47.59x, 55.5% less expensive than LULU, which is currently trading at 74.01x.
NKE’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
NKE has a B grade for Sentiment and Quality. Of the 33 stocks in the A-rated Athletics & Recreation industry, NKE is ranked #23.
In total, we rate NKE on eight different levels. Beyond what we stated above we also have given NKE grades for Growth, Value, Momentum, and Stability. Get all the NKE ratings here.
Foot Locker, Inc. (FL)
FL operates as an athletic footwear and apparel retailer under the brand names Foot Locker, Lady Foot Locker, Runners Point, Sidestep and others. The company also operates various web sites, including eastbay.com, final-score.com, and eastbayteamsales.com.
On February 18, FL’s Board of Directors approved a $275 million capital expenditure program for 2021 which includes elevated investment in the organic business growth and an increase in its dividend.
FL’s sales increased 9% year-over-year to $2.11 billion in the third quarter ended October 31, 2020. The company’s comparable-store sales increased by 7.7%. Its net income grew 112% from the prior-year quarter to $265 million, while its EPS increased 117.2% year-over-year to $2.52.
A consensus EPS estimate of $0.88 for the next quarter ending April 30, 2021 represents a 231.3% improvement year-over-year. Also, FL beat the Street’s EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $1.78 billion for the next quarter represents a 35.5% increase from the same period last year. The stock has gained 28.5% over the past year.
In terms of forward non-GAAP p/e, FL is currently trading at 19.84x, 273% less expensive than LULU, which is currently trading at 74.01x.
It is no surprise that FL has an overall rating of B, which translates to Buy in our POWR Ratings system. FL has a B grade for Quality, Value and Sentiment. In the same industry, it is ranked #17.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the FL ratings for Stability, Growth, and Momentum here.
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NKE shares were trading at $143.48 per share on Thursday afternoon, down $0.51 (-0.35%). Year-to-date, NKE has gained 1.42%, versus a 3.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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