lululemon or Hanesbrands: Which Apparel Stock Wears the Crown Now?

Core Insights - The apparel industry is represented by two contrasting companies: lululemon athletica inc. (LULU) as a premium brand and Hanesbrands Inc. (HBI) as a mass-market player [1][2] Lululemon (LULU) - Lululemon has maintained a strong position in the premium activewear market, with Q2 fiscal 2025 revenues increasing by 7% to $2.5 billion and EPS of $3.10 exceeding expectations [3][7] - The company's digital sales accounted for $1 billion, or 39% of total sales, highlighting its effective omni-channel strategy [3] - Lululemon operates over 784 stores globally and has 30 million loyalty program members, indicating a broad consumer base [4] - The brand experienced 25% revenue growth in China, showcasing its international expansion potential [4] - Lululemon is focusing on innovation through its "Science of Feel" platform, with plans to increase the share of new styles from 23% to 35% by spring 2026 [5] - The company has a robust balance sheet with $1.16 billion in cash and an industry-leading gross margin of 58.5% [6] - Despite trimming guidance for fiscal 2025 due to U.S. market softness, lululemon is positioned to outperform peers due to its premium brand and loyal customer base [7] Hanesbrands (HBI) - Hanesbrands reported Q2 2025 net sales of $1.5 billion and an adjusted operating profit of $185 million, with a gross margin expansion of 420 basis points to 40.1% [8][9] - The Innerwear segment remains a key driver, benefiting from disciplined pricing and cost efficiencies [9] - HBI is focusing on portfolio simplification and operational efficiency, divesting non-core businesses to enhance shareholder value [11] - The company is investing in digital transformation to improve e-commerce and customer engagement, ensuring broad market reach [12] - HBI's raised full-year outlook reflects improved fundamentals, with expectations for higher profitability driven by gross-margin gains [13] - Despite a projected sales decline, HBI's upward EPS revisions indicate a turnaround story, appealing to investors seeking steady cash flow [17][20] Price Performance & Valuation - Over the past three months, HBI stock gained 29%, while lululemon's stock fell by 35.2% [21] - Lululemon trades at a forward P/E multiple of 11.03X, below its 5-year median of 30.03X, while HBI trades at 9.71X, with a 5-year median of 9.03X [26][27] - The premium valuation of lululemon reflects its brand equity, but recent earnings pressures make it appear expensive [27][28] - HBI offers a more value-oriented entry point, aligning with its stable fundamentals and turnaround momentum [28] Conclusion - Hanesbrands is positioned favorably in the current market, with improving profitability and robust price performance, making it an attractive entry point for investors [29][30] - Lululemon, while maintaining long-term growth potential, faces near-term earnings pressures and trades at a premium, making it a costlier investment [30]