StockOpine's avatar
$43.5m follower assets
EBIT margins of athletic leisure stocks
$LULU's outperformance in terms of EBIT margin over the years is superb.
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Thoughts?
Glenn's avatar
Very interesting. One of the outsiders with new management may be Under armour to improve on this (albeit never getting near Nike or Lulu)
Recently opened a position in On Holdings. Believe it has the potential to reach similar margins to Lulu in the long term.
StockOpine's avatar
@fourmilecapital thank you Glenn. What is the thesis on On Holdings?
StockOpine's avatar
@nathanworden it should be.
Glenn's avatar
Growing at a really impressive rate with fantastic gross margins. The shoes are super impressive and comfortable and building a loyal customer base on all evidence. Listened to management at ICR conference yesterday and 95% of online sales over holiday period were at full price which is really impressive considering the promotional environment right now. Also think lots of potential with roger federer. He holds a decent equity stake and lives only 15 minutes away from On’s headquarters. Recent earnings call suggests their tennis offering is going to be expanded considerably with Federer now having more time post retirement (worth highlighting Federer signed a lifetime apparel deal with another brand but left footwear out) allowing him to work with ON
Glenn's avatar
Of course it is expensive 28x 2024 earnings and 40ish from memory for 2023. Important to remember quality never looks to cheap
StockOpine's avatar
@fourmilecapital interesting facts. Especially the 95% online sales without discount. Thanks for sharing!
Reasonable Yield's avatar
Premium retail commands a premium margin.
Joey Hirendernath's avatar
I find that Lululemon’s fans are willing to pay a premium for its products. By focusing on social media and local ambassadors for community-based marketing for example yoga, spin and barre instructors, the company makes its products more desirable to its target customers despite the similar clean aesthetic of other brands. Perhaps that is why the company enjoys higher returns on invested capital and operating profit margins than its peer set. Thanks for sharing this great chart
Glenn's avatar
@reasonableyield completely agree. Think current analyst estimates may also be a bit conservative. Huge potential in Asia, particularly China. Not to mention the apparel side of the biz. Lower margins of course but important imo if ON will become a 15bn+ brand. Apparel only accounting for mid single digit of total sales right now but indications are the appetite is there from customers. In own stores in China, Apparel share has reached between 20-30% of total sales
StockOpine's avatar
@joeyhirendernath you are welcome Joey. Do you see the efficiency of their marketing strategy fade out thus impacting margins and returns?
StockOpine's avatar
@fourmilecapital you are referring to On right?
Joey Hirendernath's avatar
I can't say for sure how their marketing strategy will evolve over time and maintain its efficiency. But I think if they are able to maintain the perception of high quality and continue to play on the Veblen effect then they can still hold high margins and returns.
Joshua Simka's avatar
@reasonableyield Conversely (no pun intended), $UAA's discounting and the brand erosion caused by their placements in off-price stores like T.J. Maxx mean razor thin margins! And an unimpressive stock chart.

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Glenn's avatar
@stockopine referring to On yes
Rihard Jarc's avatar
Don't follow the leisure market that much but in your view what is the reason for $LULU's big difference in EBIT vs the industry.
StockOpine's avatar
@rihardjarc still working on that Rihard but will cover it on the write-up.

Comparing lower ebit margin of Under Armour with Lululemon:

At first glance this seems to be driven by 2 factors.
a) Gross margins are at the 50%s compared to over 55% for Lulu, most likely explained by the large weight of wholesale revenues of $UAA.
b) SG&A over sales are above 40% vs c. 35% of Lulu (most likely it’s less efficient).
StockOpine's avatar
@rihardjarc wholesale revenue weight seems to be one of the key drivers (applies to $UAA , $NKE , $SKX and $ADDYY )
Rihard Jarc's avatar
@stockopine Thx for sharing.
StockOpine's avatar
@rihardjarc you are welcome.

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