3 Sports, no matter what, there is always sports. As you know, I have been doing a lot of research on sports apparel as of late. I sold LULU for a 10% loss today, because I just don’t think they have the innovation and foresight to keep up the growth. The next closest publicly traded company is UA. LULU has a PE of 41.19 and year-over-year sales growth of 36%, to UA’s 38.59 and 21.40% respectively. The difference here is in price, UA is beaten down and only 13.6% from it’s 52wk low, but still has over 20% of the float short.
If we want to get down to “brass tacks,” let’s look at the quarter-over-quarter earnings and revenue growth: LULU sits at 47.7% and 37.5%, with UA at 54% and 25.5%, respectively LULU still has higher margins, but it’s only a matter of time before that begins to bite them. Honestly though, you can only have so many pants and hoodies of the same type, but in different colors. Another aspect we have to look at is the diversification of the two companies. LULU has their niche market cornered, Yoga, “ladies of leasure,” and dudes who want to have an “ice breaker” in Zumba class. That channel starts to narrow when the market and the economy go down. Also, have you seen closets in most SF and NYC apartments? There’s not a lot of room for the same exact thing.
The edge that UA has is its diversification. You could split the company into many more segments, but I want to focus on three: Lifestyle/Active Wear, Pro Sports, and The Military. Let me tell you something, all the dudes and ladies in uniform wear wear UA under their uniforms when deployed, TRUST ME. Even after the war in Afghanistan is over, soldiers stationed at posts like Fort Bragg (my duty station), that have to train in the heat and humidity will be buying UA likes it’s going out of business. Did I mention they already have a few government contracts and contracts with private security firms? They do, and that’s just one segment of the company.
The other two segments make up the majority of the firm’s business. They are now making products that are almost identical to LULU’s, with very similar fabric, at a lower price point. If they got a design team that was run by “ladies of leisure,” they would be able to trap that entire market. They are becoming THE pro sports retailer, it’s only a matter of time before they get serious international saturation, and then they are going to crush NKE. I love everything I own that is UA, since I bought my first brown army undershirt in 2004, so I guess I may be biased. I truly believe UA has the innovation, the diversification, and the model to beat the rest.
I’m looking for an entry to buy UA.
[EDIT] Charts here.
3 Responses to “What Goes on Even in Dire Times?”
The Analyst
I’d be curious if UA bought Bonobos (which has considered plans to go public). Both already have huge brand alliance to their respective (mostly male) customers, a tie-up would help both with male and female customers. Im sure there’s plenty of ladies out there who have to wear business casual/business but would appreciate a little more comfort, and Bonobos could be the answer there, at least like what they did/are doing for men. I’d imagine this would also, theoretically, get the modern woman away from LULU & overpriced yoga pants and gym clothes and towards UA’s. Just a thought, probably won’t happen but I think it’d make sense strategically speaking to drive growth for both co’s (UA/Bonobos). Pardon me for the grossly oversimplified thought, have a lot of other things I’m working on.
Rhino
Agree, the best professionals are also athletes.
UncleBuccs
Just throwing it out there, but DKS seems to have the largest selection of UA “on the floor” whenever Auntie is not shopping online. Obviously this is only a modest portion of their business, but their athletic wear departments do seem to be quite large with decent selection.