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It’s been almost a week since Lululemon’s (LULU - Free Report) lackluster Q2 report led to a sharp decline in its stock, hitting a new 52-week low of $162 a share. Although Lululemon was able to exceed Q2 earnings expectations, the leading athletic apparel company slashed its full-year guidance, with a major factor being a $240 million hit from tariffs.

This has raised concerns about the effects of a challenging macro environment on other active-wear apparel companies, including Nike (NKE - Free Report), which is scheduled to report results for its fiscal first quarter on Tuesday, September 30. 

Like Lululemon, Nike's stock has been submerged in volatility, climbing off a one-year low of $52 a share but still 19% from a 52-week peak of $90. Furthermore, NKE is more than 50% below its all-time high of $167, with LULU trading 67% beneath its record peaks of $511.

Despite their grizzly stock performances in recent years, let’s see if now is an opportune time to invest in either of these leading apparel retailers for a sharp rebound.
 

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Stale Product Lines & Lululemon’s Surprising Competitors 
 

Offering high-quality activewear and footwear, both brands compete directly in the athletic apparel market, but Lululemon has faced increased competition from unlikely competitors that appear to be disrupting its core business. Simarlar to Nike, Lululemon’s management has admitted that its product lines have become stale and is racing to fast-track new designs. 

Centered around its yoga-inspired athleisure gear, Lululemon’s same-store sales fell 4% during Q2 in its core North American market. Notably, several analysts and CNBC contributor Jim Cramer pointed to surprising scenarios/competitors for the disruption, such as more affordable jogger brands offered by Costco (COST - Free Report) and The Gap (GAP - Free Report).

While it wasn’t enough to offset domestic concerns, Lululemon's international sales surged last quarter, with China segment sales up 25% and collective markets in the rest of the world up 19%. Still, Lululemon is being impacted by the removal of the de minimis exemption, which previously allowed smaller international shipments to bypass tariff duties. Raising more fears regarding margin pressures and its stale product line, Lululemon’s inventory ballooned 21% year over year to $1.7 billion.
 

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Nike’s Leadership Overhaul & Strategic Pivot
 

Facing a growing number of competitors outside of Adidas (ADDYY - Free Report), Nike has undergone a leadership change with long-term executive Elliott Hill taking over as President and CEO in 2024. Having more than 30 years of experience with Nike, Hill has refocused the iconic sports brand on its core strengths after a tech-centric strategy misfired.

Pouring resources into digital ads and performance marketing, Nike still experienced a drop-off in digital sales and alienated partners like Foot Locker and Macy’s (M - Free Report) in a bid to boost its direct-to-consumer (DTC) reach on Nike.com. It’s noteworthy that Nike’s inventory remained flat during its most recent fiscal fourth quarter, and expects to have a “clean” inventory position by the first half of its current fiscal year 2026.

Aiming to rebuild relationships with third-party vendors, Hill has refocused Nike on wholesale distribution, product innovation, and storytelling campaigns. Plus, Nike has announced plans to shift manufacturing away from China, aiming to reduce exposure to tariffs that could cost up to $1 billion. Stating that the brunt of the tariff impact may be behind it, Nike’s leadership has implemented a four-pronged plan that also includes negotiating with suppliers and retailers to share the cost burden, while cutting corporate costs and selectively raising prices in the U.S.

Nike is better suited to handle Tarriff headwinds
 

While Lululemon’s immense profitability has wowed investors at times, it doesn’t take Captain Obvious to realize that Nike may be better suited to handle tariff headwinds. Even with Nike facing higher tariff costs, the company is projected to bring in over $40 billion in annual sales for the foreseeable future, compared to Lululemon’s forecast of $11 billion or more.

That said, Nike is generally better positioned to handle tariffs than Lululemon thanks to its supply chain maturity as well. Having a deeper global infrastructure, Nike has diversified manufacturing from multiple countries outside of China, including Vietnam, Indonesia, and India. Lululemon, on the other hand, is more vulnerable to sudden policy shifts and cost spikes as it relies heavily on Canadian and Vietnamese factories.
 

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Conclusion & Final Thoughts
 

Being further along in its turnaround strategy, a rebound looks more likely for Nike stock, as there could still be more short-term weakness ahead for Lululemon shares. Of course, Lululemon will need to overcome tariff uncertainties, but one thing it can learn from Nike as it undergoes an apparel renovation of its own, is that tech is not always a substitute for product relevance, retail relationships, or emotional brand storytelling that resonates with consumers.

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