Critical Analysis: Carter’s (CRI) & Lululemon Athletica (LULU)

Carter’s (NYSE: CRI) and Lululemon Athletica (NASDAQ:LULU) are both consumer discretionary companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, profitability, valuation, analyst recommendations, dividends, earnings and risk.

Insider and Institutional Ownership

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97.5% of Carter’s shares are owned by institutional investors. Comparatively, 80.2% of Lululemon Athletica shares are owned by institutional investors. 3.3% of Carter’s shares are owned by insiders. Comparatively, 0.3% of Lululemon Athletica shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Carter’s and Lululemon Athletica, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Carter’s 0 4 9 0 2.69
Lululemon Athletica 0 15 21 0 2.58

Carter’s presently has a consensus price target of $119.83, suggesting a potential upside of 12.19%. Lululemon Athletica has a consensus price target of $82.38, suggesting a potential downside of 13.80%. Given Carter’s’ stronger consensus rating and higher possible upside, equities analysts clearly believe Carter’s is more favorable than Lululemon Athletica.

Dividends

Carter’s pays an annual dividend of $1.80 per share and has a dividend yield of 1.7%. Lululemon Athletica does not pay a dividend. Carter’s pays out 31.3% of its earnings in the form of a dividend. Carter’s has increased its dividend for 4 consecutive years.

Volatility & Risk

Carter’s has a beta of 0.44, indicating that its share price is 56% less volatile than the S&P 500. Comparatively, Lululemon Athletica has a beta of 0.19, indicating that its share price is 81% less volatile than the S&P 500.

Earnings & Valuation

This table compares Carter’s and Lululemon Athletica’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Carter’s $3.40 billion 1.48 $302.76 million $5.76 18.54
Lululemon Athletica $2.65 billion 4.89 $258.66 million $2.59 36.90

Carter’s has higher revenue and earnings than Lululemon Athletica. Carter’s is trading at a lower price-to-earnings ratio than Lululemon Athletica, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Carter’s and Lululemon Athletica’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Carter’s 8.90% 35.46% 13.81%
Lululemon Athletica 9.76% 24.59% 20.21%

Summary

Carter’s beats Lululemon Athletica on 11 of the 17 factors compared between the two stocks.

About Carter’s

Carter's, Inc., together with its subsidiaries, designs, sources, and markets branded childrenswear under the Carter's, Child of Mine, Just One You, Precious Firsts, Simple Joys, OshKosh, Skip Hop, and other brands. The company operates through three segments: U.S. Retail, U.S. Wholesale, and International. Its Carter's products include baby products, such as bodysuits, pants, dresses, multi-piece sets, blankets, layette essentials, bibs, and booties; play clothes products comprising knit and woven cotton apparel; sleepwear products consisting of pajamas in cotton, fleece, and ploy-jersey; and other products, including bedding, outerwear, swimwear, footwear, socks, diaper bags, gift sets, toys, jewelry, cribs, paper goods, and hair accessories. The company's OshKosh brand products comprise playclothes products that include denim, overalls, woven bottoms, knit tops, bodysuits, and other playclothes for sizes newborn to 14. It also offers baby, sleepwear, outerwear, footwear, hosiery, and accessories under the OshKosh brand. The company distributes its products through department stores, chain and specialty stores, and discount retailers, as well as company-operated stores, and Websites. As of December 30, 2017, it operated 466 Carter's and 131 OshKosh stand-alone stores in the United States; 159 side-by-side and 74 co-branded stores in the United States; and 179 co-branded stores in Canada. The company was founded in 1865 and is headquartered in Atlanta, Georgia.

About Lululemon Athletica

lululemon athletica inc., an athletic apparel company, together with its subsidiaries, designs, distributes, and retails athletic apparel and accessories for women, men, and female youth. It operates through two segments, Company-Operated Stores and Direct to Consumer. The company offers pants, shorts, tops, and jackets for healthy lifestyle and athletic activities, such as yoga and running; other sweaty pursuits; and athletic wear for female youth. It also provides fitness-related accessories, including bags, socks, underwear, yoga mats, and water bottles. The company sells its products through a chain of company-operated stores; outlets and warehouse sales; a network of wholesale accounts, such as yoga studios, health clubs, and fitness centers; license and supply arrangements; and showrooms, as well as directly to consumer through lululemon.com and ivivva.com e-commerce sites. As of January 29, 2017, it operated 406 company-operated stores under the lululemon and ivivva brands in the United States, Canada, Australia, the United Kingdom, New Zealand, China, Hong Kong, Singapore, South Korea, Germany, Puerto Rico, and Switzerland. lululemon athletica inc. was founded in 1998 and is based in Vancouver, Canada.

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