3 reasons why Lululemon has the advantage over Nike


lululemon athletics (NASDAQ: LULU) reported first quarter 2021 results Thursday after the market closed, crushing Wall Street earnings and profit expectations. But despite its good numbers, the title has lagged considerably behind its colossal enemy in the industry, Nike (NYSE: NKE), during the last 12 months.

Lululemon has three major advantages over the Swoosh, however. Let’s dive into the recent quarterly numbers and see what they are.

Image source: Getty Images.

1. Largest e-commerce company

In the 13-week period that ended May 2, direct-to-consumer sales of Lululemon jumped 55% to $ 545.1 million. This segment, which the company also calls e-commerce, accounted for around 44% of revenue for the quarter, which is actually down from 54% in the first quarter of 2020, when most stores were closed in due to the pandemic.

It is well known that Nike was make a huge digital push over the past few years, but he’s still behind Lululemon in this category. During Nike’s last earnings conference call (Q3 2021), CFO Matthew Friend noted that “digital now exceeds 35% of [our] The company’s long-term goal is to achieve a 50% digital sales mix, which Lululemon has already achieved.

This is important because as more transactions are done online, Lululemon enjoys higher margins. The overhead costs (such as rent and payroll) of running a physical store are avoided, which means more money is fueled by Lululemon’s bottom line. And that brings me to the next point.

2. Higher gross margin

Lululemon’s first quarter 2021 Gross margin (revenue less cost of goods sold) 57.1% far exceeds Nike’s 45.6%. This is not a new phenomenon – since Lululemon went public in 2007, he has consistently had a higher gross margin than Nike.

The fact that more revenue is generated through the direct-to-consumer channel only supports this trend. Additionally, Lululemon rarely sells items at discounted prices, which contributes to the company’s premium brand perception. Nike, on the other hand, relies heavily on wholesale partners, such as Dick’s Sporting Goods Where Walk-in locker, to move its products.

So, because Lululemon sells most of its products directly to customers at full price, it has a higher gross margin, which translates into pricing power. Inventories increased 17% in the quarter, compared to an 88% increase in revenue. Nike’s inventory balance, however, grew at a faster rate than its sales. This efficiency and distribution control allows Lululemon to manage a tight operation.

3. Biggest international opportunity

Nike is truly a global brand, with 66% of sales coming from outside of North America. This contrasts sharply with the geographic division of Lululemon. As of January 31, only 14% of the athleisure pioneer business came from international markets.

Lululemon’s international revenue jumped 125% in the quarter, far outpacing the gain in North America. And CEO Calvin McDonald recognizes this is a huge opportunity for the brand. “I can see a time in the near future when our international business will grow to be equal to our business in North America,” he said during the call for results.

With plans to open 35-40 (out of 45-55 in total) net new stores in international markets in FY2021, Lululemon will have the opportunity to strengthen brand recognition overseas, especially in the Asia-Pacific region.

Some final thoughts

The sportswear industry is extremely competitive. Consumer tastes are constantly changing, so creating a brand that resonates well with buyers is absolutely vital to a business’s long-term success.

Lululemon clearly achieves this and is now showing strength in some very important areas of his business compared to his biggest rival. While still pale compared to Nike’s massive $ 210 billion market cap, Lululemon’s outlook remains very bright.

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Neil patel has no position in any of the stocks mentioned. The Motley Fool owns shares and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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