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Spencer Knight
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  • Why Lululemon Can Beat Nike and a Hint at Apple's Weakness 1 comment
    Mar 27, 2011 5:50 PM
    Stocks Mentioned: Lululemon (LULU), Nike (NKE), Apple (AAPL).

    As many of you know Lululemon (LULU) recently posted amazing Q4FY2010 results (found here), and Nike (NKE) reported less than par Q3 results (found here).  Nike stated that the biggest problem was cost in supplies that forced their spending to be higher which caused their margins to dwindle.  This directly relates to why I, most likely the only person in the world, think that Apple (AAPL) is not a good long term company.  I believe this due to the amount of outsourcing the company does.  This means that as commodity prices increase and other countries enact higher minimum wage laws then the companies will struggle to keep pace with their historically amazing results.  Nike is a perfect example of this because they have many of their jobs outside the United States, so it makes the costs of production higher.  And if you are paying more to produce something and the sell price stays the same then you obviously are making less profits.  In turn this leads to higher prices for the consumer, which does not make people happy.  I think the price hike Nike will enact is going to hurt them even more since other companies make the same types of products and if people can get sporting wear for less then they will go to the cheaper stores.  With that said, Nike is an icon in sports apparel and will forever have a huge market base, but I believe raising prices will dwindle per store sales.  And if Nike allows customers to try different stores out then they will see that Nike products are not better than anything else.

    This leads to how Lululemon is rising just how Nike once did.  Lululemon is mostly a women’s clothing store that began by making yoga products.  Of course since yoga products are comfortable to woman then it led to woman all over buying comfortably stylish clothes.  Currently the company only has 133 stores, so as they expand then they will be able to make much more revenue off their products since people will continue to buy these clothes since the world is continually going into a more casual phase.  Also, since yoga is becoming more and more popular than people will buy the specialized yoga clothing, even though a normal pair of workout pants can suit the standard yoga session.  Not only is Lululemon becoming a powerhouse in sportswear, they are just beginning to tap into the market for men; which is much more expanse than sportswear for women.  I see a continual revenue increase for Lululemon for many years to come so long as they continually expand and open new stores throughout the world.

    As mentioned above I strongly believe Apple is heading for a future that Nike is facing right now.  Since Nike has reached just about everywhere it possibly can they are being forced to raise the price of products.  It is not clear if the results miss was due to the storm on the East Coast in late 2010 or if it was something as simple as people bought less Nike products.  I believe one variable that must be thrown in is the fact that Nike is facing much more competition from other clothing companies.  Also, the new style that seems to be sweeping the nation for men is more casual clothes such as pants and shirts as opposed to the older style of sweatpants and sportswear.  This should be a warning to Apple that other companies can easily make the same product, or people will begin to buy something else.  As of now it looks like nobody can keep pace with the brilliant products Apple is making, but that is what people though about Nike at one point.  The key to take from this is that giants in any particular market can fail at some point.  Especially when the company is considered American but they outsource the majority of your jobs.  Since other countries will eventually catch up to the equality that America has, and when that happens many giants will be taken down.

    Disclosure: I have not positions about the stocks mentioned above.

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  • Spencer Knight
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    Author’s reply » It must be noted that for years to come Apple will be a successful company with constant growth. But way over the horizon they may not be.
    27 Mar 2011, 05:51 PM Reply Like
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