Brad Freeman
Equity Researcher, Creator of Stock Market Nerd
Nike and Lululemon show why apparel brands almost always belong in the too-hard pile. Consumer tastes change on a whim and are hard to model, and missteps in keeping up can be the beginning of the end even for the hottest, most beloved brands. A new shirt is among the first things people cut, and structurally growing beyond brand awareness and store runways is extremely difficult. There are better places for time and money. x.com
Lululemon, Nike and On are poor investments because their brands depend on the fickle consumer to keep them trending. The same applies to the latest restaurant chains. @CoorsLightCEO counters that this is easy to say after the fact, since Nike was an absolute compounder until 2022. x.com x.com
Lululemon's weakness is structural, and consumers may also be tightening budgets for aspirational purchases across apparel. The same slowing-sales trend showed up at other brands this quarter, and heavy wholesale promotions were flagged on the On and Amer Sports calls, making apparel a tough industry to invest in. x.com
Nike's brand concerns look priced in; stabilization, not sudden revenue acceleration, is what the speculative long needs. A few good campaigns and a return to large stores could help, though China consumers will be a drag. Short-term EPS is a poor indicator, and customers may return after trying other brands. x.com x.com
Brands have no moat, only heat cycles, and Lululemon, at new 8-year lows alongside Nike at 12-year lows, is cooling. People will always buy new clothes to look good, but that requires freshness, and another pair of Lululemons no longer delivers it the way it did in 2020. Winning means spotting which stage a brand is in. x.com x.com
Lululemon, Nike, Under Armour and On look like cursed value traps because rising competition and unpredictable fashion trends keep eroding their positions. Lululemon has lost its niche dominance as the luxury standard and is now one of a dozen rivals, such as Vuori, Alo and Athleta, chasing the same buyers. Lululemon sits at six-year lows, Nike at 12-year lows, Under Armour at all-time lows and On back at 2022 levels. The products may still be good, but competition is overwhelming. x.com x.com … Show more
Lululemon offers better risk/reward than Nike if it is not broken, trading below 5x EV/EBITDA versus Nike's 14x. Nike's turnaround through wholesale is very hard for a $50B revenue business facing strong rival brands, less product control, price competition and channel conflict across multiple product lines. Nike may have a better near-term chance of beating estimates and is a more evergreen brand, but Lululemon looks increasingly preferable. x.com x.com
Nike is still super expensive even if it pulls a magic trick on margins, and the stock has been a buy-the-dip nightmare because the brand became uncool. It can keep existing while slowly fading, which is a terrible investment case. x.com x.com
Nike, like other apparel makers, is uninvestable because a durable moat is near impossible in this business. Consumer preferences keep changing, requiring constant new marketing to keep people excited, and making a physical product leaves an inherently low-margin business with little long-term pricing power. A major turnaround is possible, but the business model gives no confidence in its long-term strength. x.com
Nike's addition of Alexandre Arnault to its board brings luxury-brand and consumer-marketing experience that should help boost its consumer reach and growth. Arnault was previously at Tiffany and deputy CEO of Moët Hennessy. The stock remains in the 'impossible to ignore' range. x.com
On Holding holds zero interest now that its growth has slowed too much and all the founders have left. It would still be preferable to Nike or Lululemon, but retail and apparel are best avoided altogether. x.com x.com
