Embracing premium athleisure denotes more than a trend; it reveals a lifestyle evolution. Rampant awareness of exercise’s virtues coupled with the work-from-home shift has people opting for comfort over formality. While industry behemoth Nike dominates the sportswear sphere, room abounds for contenders. Lululemon Athletica (NASDAQ: LULU) leads the pack in the premium activewear sector, yet On Holding (NYSE: ONON) stakes its claim as the epitome of upscale activewear. In the ongoing quest for investment supremacy, which stock emerges as the superior selection?
Charting Lululemon: Minimized Risk, Maximized Returns
Lululemon has methodically curated a revered status as the industry’s paragon. Cultivating a devout following among fitness enthusiasts enamored by its signature textiles and timeless designs, Lululemon entices its clientele to splurge on its wares. The brand’s affluent customer base shields it from the inflationary woes plaguing other enterprises. Weathering economic storms adeptly, Lululemon’s adept maneuvering stood out during the pandemic’s early turmoil.
In its 2023 fiscal third quarter (concluding Oct. 29), Lululemon basked in a 19% yearly sales surge propelled by a 13% uptick in comparable sales. Although operating margin compression was noted, a 1.1 percentage point enhancement in gross margin to 57% uplifted spirits. Unveiling a growth blueprint aspiring to double sales by ramping up men’s and digital sales and quadrupling the 2021 figures by 2026, Lululemon predominantly leverages direct-to-consumer pathways, with digital transactions comprising a substantial 41% of its Q3 revenue.
The brand’s footprint spans nearly 700 stores globally, with plans to unfurl 55 new stores in 2023, notably over half earmarked for China. This global expansion underpins vast revenue prospects that herald sustained growth for years to come.
Lululemon’s stellar stock performance over the years has handily outpaced the S&P 500 by twofold in the past half-decade. Given its consistent excellence, the prospects for continued market outperformance loom large.
Evaluating On Holding: Uncharted Territories to Scale
Relative newcomer On, established in 2010 compared to Lululemon’s 1998 origins, specializes in footwear while boasting a full spectrum of premium athletic wear dedicated to ardent athletes. At its core lies the CloudTec running shoe, a sensation among a devoted clientele who swear by it as their daily footwear staple. Targeting resilient, upscale shoppers unfazed by inflation, On flaunts a robust 59% gross margin in 2023, edging past Lululemon’s achievement.
Clocking a 47% annual sales surge (or 55% on a currency-neutral basis), On, headquartered in Switzerland and denominated in Swiss Francs, confronts volatilities tied to currency fluctuations. Although a profit marked its annual performance in 2023, the fourth quarter saw a loss – a hurdle inching closer to sustainable profitability.
With trailing-12-month sales hovering at $1.9 billion (in contrast to Lululemon’s $9 billion), On outlines strategic growth strategies encompassing heightened brand visibility and a global expansion drive via a multichannel strategy, incorporating a robust direct-to-consumer model and wholesale distribution. On’s star-studded lineup of celebrity partners – including luminaries like Roger Federer, Iga Swiatek, and Ben Shelton – bolsters its brand cachet.
The prospect of amplifying its follower count and customer base offers On a prime moment to seize before market projections ascend.
Determining the Prime Pick in the Premium Activewear Segment
Remarkably akin in valuation, Lululemon and On beckon investors with parallel temptations. While Lululemon boasts a track record of reliability and steadfastness, On asserts its allure as a nimble contender poised for expansion. Investors craving certitude might gravitate towards Lululemon; however, those with an appetite for risk and a penchant for burgeoning entities could incline towards On.
Is investing $1,000 in Lululemon Athletica the prudent move at present?
Before diving into Lululemon Athletica, grappling with this reality is prudent:
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Jennifer Saibil holds no position in any of the aforementioned stocks. The Motley Fool maintains positions in and endorses Lululemon Athletica and Nike. The Motley Fool lauds On Holding and advocates for long January 2025 $47.50 calls on Nike. The Motley Fool adheres to a stringent disclosure policy.
The expressed views and opinions reflect the author’s perspective and do not necessarily align with those of Nasdaq, Inc.
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