Economics of athletic apparel, a deep dive on: NKE, LULU, and UA

Hello,

Welcome to another edition of ChartWiz, where we visualize financial data in bite-sized portions. In today’s edition, we're diving into the revenue reports of prominent retailers Nike, Under Armour, and Lululemon. Join me as we analyze their financial performances and glean insights into their market trajectory.

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RECENT EARNINGS COMPARISON

Let's take a straightforward look at the revenue face-off between Nike, Under Armour, and Lululemon. Imagine a graph that, despite its simplicity, packs quite the informational punch.

• Lululemon, the underdog in this trio, has vaulted from $384.6 million to an impressive $3.2 billion in revenue, showcasing a staggering 733.3% increase.

• Under Armour is also flexing its financial muscles, growing from $682.8 million to $1.6 billion, which translates to a 129.5% increase.

• Then there's Nike, maintaining its stride with a growth from $7.4 billion to $12.4 billion in revenue, a 67.4% increase.

The chart is a visual representation of this competition, with bars in distinctive colors for each company, painting a clear picture of their growth trajectories. It's a straightforward story of how, in the athletic apparel game, performance isn't just measured on the field, but also on the balance sheets. Who knew stretchy pants and sneakers could be so compelling, in a financial sense?

RECENT EARNINGS COMPARISON

Zooming in on the athletic apparel scene, it's clear Lululemon is leading the pack with its revenue soaring from $384.6 million to an impressive $3.2 billion, marking a 733.3% increase. This significant growth not only highlights Lululemon's strong market presence but also suggests it's capturing consumer interest at an unmatched rate.

In contrast, Nike, focusing solely on its apparel business, sees its revenue climb from $2.1 billion to $3.3 billion, a 54.1% increase. While this growth is solid, it indicates Nike might be facing challenges in sustaining higher growth rates in the apparel sector, possibly due to its already large size and market saturation.

Under Armour also shows commendable growth, with its revenue increasing from $682.8 million to $1.6 billion, a 129.5% increase. Despite this, it still trails behind Lululemon's exceptional performance.

The graph, with its clear color coding for each brand, not only makes it easy to understand their respective growth trajectories but also underscores Lululemon's dominance in the apparel category. While Nike's apparel growth is steady, the comparison suggests it may need to explore new strategies to kickstart faster growth and keep pace with Lululemon's rapid expansion. The question now isn't just about who can produce the best athletic wear, but also about how companies can innovate and adapt to changing consumer preferences to fuel their growth. Lululemon's success story in this segment sets a high benchmark, challenging others to catch up.

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REVENUE SEGMENT BREAKDOWN - ALT DATA [PREMIUM]

• The standout performer here is Nike's footwear segment, which has expanded from $4.4 billion to $8.2 billion, an impressive 85.4% growth. This leap underscores the brand's stronghold in the shoe market, likely driven by constant innovation and effective marketing strategies that resonate with consumers worldwide.

• In contrast, the apparel segment, while experiencing growth from $2.1 billion to $3.3 billion (a 54.1% increase), shows signs of a plateau in recent years. This segment's growth, although significant, is less dynamic compared to the explosive trajectory seen in footwear. The recent trend suggests a potential saturation or challenges in expanding the apparel line at the same aggressive pace as footwear.

• The equipment category, the smallest of the three, registers a modest uptick from $447 million to $487 million, marking an 8.9% growth. This segment's relatively stable, albeit slight, increase indicates a consistent but limited market presence.

The chart, through its visual stratification—blue for footwear, gold for apparel, and red for equipment—narratively positions the footwear segment as the engine of Nike's revenue growth. It's clear from this segmentation that while Nike continues to perform well across the board, the real momentum is overwhelmingly in footwear, suggesting that future strategies might lean even more into this segment to fuel overall growth. The apparel division's less vigorous expansion in recent periods points to an area that may require refreshed strategies or innovations to reinvigorate growth and match the dynamism of the footwear sector.

NIKE - HOW THEY MAKE MONEY

This concise overview delves into Nike's financial metrics for their most recent quarter, shedding light on revenue streams, costs, and profit margins. Nike's total revenue stands at $12.44 billion, with its revenue streams diversified across footwear, apparel, equipment, and the Converse brand.

• Footwear is the largest contributor, bringing in $8.16 billion, which accounts for approximately 65.6% of the total revenue.

• Apparel follows with $3.29 billion, making up about 26.4%.

• Equipment adds $487 million, or roughly 3.9%.

• The Global Brand Divisions and Converse collectively contribute $504 million, with Converse specifically contributing $495 million.

The cost of goods sold (COGS) is reported at $6.87 billion, leading to a gross profit of $5.56 billion. This results in a gross margin of about 44.7%, indicating a strong profit margin relative to production costs. After accounting for demand creation expenses ($1.01 billion) and operating expenses ($3.21 billion), Nike's net income amounts to $1.17 billion. This net income signifies a profit margin of approximately 9.4%, illustrating Nike’s efficiency in managing its operational costs and maintaining profitability.

These figures not only highlight Nike’s dominant position in the footwear market but also its significant presence in apparel and other segments. The breakdown emphasizes the company's strategic financial management, showcasing its ability to generate substantial revenue while maintaining high levels of profitability, with footwear, apparel, and equipment segments contributing significantly to its overall financial health.

HISTORICAL RETURN

How $10,000 Invested in Nike (NKE), Lululemon (LULU), and Under Armour (UA), would have returned 10 years ago.

This chart illustrates the decade-long journey of a $10,000 investment in Nike (NKE), Lululemon (LULU), and Under Armour (UA), revealing a dramatic divergence in investment outcomes. Lululemon stands out as the unparalleled victor, with the initial investment ballooning to an astonishing $82,723, representing an eye-popping increase of approximately 727%. Nike also provides a healthy return, turning $10,000 into $23,678, which equates to a solid 137% growth. Under Armour, on the other hand, presents a stark contrast, with the investment dwindling to just $868, marking a shocking decline of over 91%. This visual comparison starkly highlights the contrasting fortunes of these athletic apparel brands over the past decade, underlining Lululemon's outstanding growth, Nike's steady gains, and Under Armour's significant challenges.

WORD FROM WIZ

That’s all we have for you in today’s edition of ChartWiz. If you found this valuable, please consider forwarding it to a friend.

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Have a fantastic week!

-Wiz

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