Lululemon (NASDAQ: LULU) stock has also been feeling the pinch of pressured consumers. However, relative to most other players in the apparel waters, the popular yoga-wear company has been pretty resilient.
How could this be? The brand is impressive, and though there’s been rising competition in the yoga and athleisure space, it seems like the powerful brand image and large total addressable market (TAM) in men’s wear could be drivers that could help Lululemon continue to outgrow peers, as we move through a recession en route to a normalized retail environment.
Indeed, shares of LULU are off around 15% from its all-time high hit back in 2021. Back in the lockdown days of COVID-19, it’s not hard to imagine more people lounging around the home, with more demand for yoga wear and less demand for more formal attire typically worn at the office.
Lululemon stays resilient amid macro storm
Though many workforces have moved to a hybrid, with some beckoning employees back to physical offices, I still think Lululemon has legs. So, what’s wrong with Lululemon? The stock is just too expensive for my liking at a time when there is no shortage of value plays in the retail waters. Further, I’d argue that some of Lululemon’s apparel peers may be in deep-value territory.
So, while the Vancouver-based Lululemon remains a legendary brand that’s been relatively resilient amid macro headwinds, I continue to favour other options out there. After a nice run off its 2021 lows, LULU stock goes for more than 51 times trailing price to earnings (P/E). That’s a pretty penny, with some pretty upbeat expectations built in. If a recession proves anything but soft, I’d argue that Lululemon stock could have more downside risk than the peer group.
Right now, I think fellow Vancouver-based apparel play Aritzia (TSX: ATZ) and generic clothing manufacturer Gildan Activewear (TSX: GIL) ought to be more fashionable among the value crowd.
Aritzia
Aritzia is way cheaper than Lululemon after losing around 60% of its value. At 22.52 times trailing P/E, though, the stock still doesn’t seem all that cheap. Indeed, macro headwinds are a contributor to ATZ stock’s fall. However, Stifel’s analyst Martin Landry is in the belief that the Canadian clothing retailer is losing market share, thanks to a 4.3% drop in same-store sales. That’s concerning, to say the least, and could bring forth even more pain for shareholders.
Still, I’m not so sure Aritzia’s troubling sales slump is the start of a trend. Indeed, Aritzia clothing isn’t what you’d consider cheap. As discretionary spending picks up, I think sales growth could really start to pick up. Indeed, the Aritzia brand is still incredibly popular. As a discretionary, though, the booms can be just as sizeable as the busts.
Right now, I view ATZ stock as having more upside than Lululemon, even if it’s a more fashion-forward play as opposed to athleisure.
Gildan Activewear
Gildan Activewear stands out as a great buy-and-hold play for investors looking for deep value in the clothing arena. The stock is off 26% from its 2021 all-time high and has been fluctuating wildly over the past few quarters.
At 10.56 times trailing P/E, GIL stock stands out as one of the cheapest ways to play the space. Generics and printable tees don’t tend to go out of style. In that regard, demand shouldn’t be as choppy as the likes of a fashion-focused retailer.
With a nice 2.56% dividend yield and the means to grow its payout over the years, I consider it a far less risky bet than the likes of Lululemon.
