Weekly Stocktake with Danyaal
31 March 2023
Key Indicators
| Index / Fund / Rate | Start of Year | Last week | This Week | % change YTD |
|---|---|---|---|---|
| JSE ALSI | 73 049 | 74 695 | 76 100 | 4.18% |
| NASDAQ Composite | 10 467 | 11 824 | 12 221 | 16.76% |
| S&P 500 | 3 840 | 3 971 | 4 109 | 7.01% |
| Prime Lending Rate | 10,50% | 10,75% | 11.25% | 7.14% |
| Lunar BCI WW Flexible Fund | 141,43 | 154.28 | 155.09 | 9.66% |
| USD/ZAR | 16,98 | 18.20 | 17.79 | 4.77% |
| EUR/ZAR | 18,44 | 19.52 | 19.27 | 4.50% |
| Brent Crude ($’barrel) | 85,95 | 74.49 | 79.73 | -7.24% |
Source: Iress
“Just Do It” Or “Be All In”
In the past two weeks, two athleisure brands that we follow, Nike and Lululemon, released their results. What’s interesting is the contrast between where each company is, in their respective lifecycle, particularly with regards to their product journey. Nike, founded in 1964, started selling footwear before branching out into other apparel. They now offer a wide range of products, from athleisure wear to team-sports clothing and accessories. On the other hand, Lululemon was founded in 1998 and initially designed yoga clothing for women. They primarily target the upper-income bracket. And have only recently expanded into designing athleisure-wear for men.
Nike and Lululemon’s respective journeys can also be shown by their progress in sponsorships with sport teams and stars. Nike is widely known as the premier sponsor across multiple sports. They pay top-of-the-market rates for sponsorship deals and are the go-to-choice for many sports stars. In contrast, Lululemon is relatively new to this space and currently focuses on certain sports such as yoga, running, tennis, and golf.
In the trailing twelve months, Nike’s revenue increased by 8% to $50.6 billion, while Lululemon’s revenue increased by 30% to $8.1 billion. Last year, both companies faced inventory pressure due to overstocking under global supply chain constraints. Nike’s gross margin decreased from 46%, for the previous 12-month period, to 44% for the current 12-month period. Lululemon’s high gross-margin decreased from 58%, last year, to 55%, this year. Both companies had a net margin of around 11%. On Friday, Nike’s market capitalization was $190 billion, with a price-to-earnings (PE) ratio of 35. Lululemon, on the other hand, had a market capitalization of $46 billion and a PE ratio of 54.
Because Nike has a diverse range of products across multiple categories, the impact of any single product’s performance on their income statement may be muted. If a single product performs well, it may not have a significant positive-impact on the overall income statement. Conversely, if a product performs below expectations, the negative-effect on the income statement may also be less significant. In contrast, Lululemon’s income statement is more sensitive to the performance of their products due to their narrower focus. Therefore, the performance of a single product or category may have a higher impact on Lululemon’s overall financial performance.
Lululemon is held in the Lunar BCI Worldwide Flexible Fund
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This roundup is prepared for the clients of Lunar Capital (Pty) Ltd. This roundup does not constitute financial advice and is generated for information purposes only.
