Mikael La Ferla

I. EXECUTIVE SUMMARY 

Lululemon Athletica Inc. designs and sells premium athletic apparel and accessories, relying on company‑owned stores and a strong e‑commerce platform. Adidas AG, headquartered in Herzogenaurach, Germany, manufactures and markets athletic footwear, apparel, and equipment worldwide through both wholesale partners and its own retail outlets. Lululemon files a Form 10‑K under US GAAP, while Adidas follows IFRS, so every Adidas figure in this report is restated to U.S. dollars at the year‑end mid‑market rates of €1 = $1.041 for 2024 and €1 = $1.107 for 2023 (Wise, 2023). Year‑end share prices come from Yahoo Finance, and industry growth data comes from McKinsey’s Sporting‑Goods Outlook 2025.

The global athletic market expanded by 7% a year between 2021 and 2024, driven by online demand in North America and rapid growth in China (McKinsey 2025, P. 4). Lululemon holds roughly 3% market share, while Adidas commands about 10%. In 2024, Lululemon surpassed $10 billion in revenue, had a 58% gross margin, and converted 22% of sales into operating profit, as it finished with $2 billion in cash and no long‑term debt (Lululemon 2024, P. 36). Adidas generated €23.7 billion, or about $24.7 billion, increased its gross margin to 51%, and posted a 5.6% operating margin after cutting inventory by 24% (Adidas 2024, P. 78). Because wholesale partners carry more working capital, Adidas still turns assets faster, booking $1.15 of sales for every $1 of assets versus Lululemon’s $0.49 for every $1 of assets.

Accounting policy differences exaggerate the headline spread. Adidas incurs a larger share of design and marketing costs immediately and records more leases as debt, but even after normalising for those items, Lululemon’s margins remain higher. Investors recognise the gap: on the last trading day of each fiscal year, they paid about 19× EBITDA for Lululemon and 10× for Adidas (Yahoo Finance). Shared risks include exchange‑rate swings, supply‑chain exposure in Asia, and rising fabric costs. Lululemon also faces fashion fatigue, while Adidas must avoid rebuilding excess stock. The numbers and the risk profiles point to a “Buy” rating on Lululemon for growth‑oriented investors and a “Hold” on Adidas until it can sustain a double‑digit operating margin.

II. COMPANY OVERVIEW 

Lululemon Athletica Inc., a North American multinational athletic apparel company founded in 1998 with its headquarters in Vancouver, Canada, started as a retailer of yoga wear (Lululemon, 2024). According to the company’s history page, as of July 2025, they operate over 770 stores worldwide and have a strong e-commerce platform. Their product selection includes workout gear, lifestyle apparel, and accessories, and they have released their first-ever men’s collection in 2024 (Lululemon, 2022). In the recent annual report, Lululemon has experienced strong revenue growth across the world, including regions in Asia and Europe, expanding its international footprint (Lululemon, 2024, P. 2). The company’s strategic efforts to expand its global footprint and diversify its revenue streams are reflected by its international popularity.

Adidas, founded in 1949, is one of the most globally recognizable sportswear brands, with its headquarters in Herzogenaurach, Germany, and operations in over 160 countries (World Economic Forum, 2024). The company offers a wide variety of products across various sports, from apparel to accessories, and is most commonly known for its footwear. Recently, in October 2022, Adidas terminated one of its most popular footwear collaborations with  Kanye West on their Yeezy partnership for his antisemitic comments. While the termination added some pressures and economic changes, the company still remains focused on product innovation and sustainability, as it adapts to changing consumer behavior and maintains a significant market share and brand recognition worldwide, particularly in North America, Europe, and Asia-Pacific (Adidas, 2025). While the termination of the Yeezy partnership had a negative financial impact on the company. In 2024, they reported an 11% increase in revenue to €23.68 billion (Adidas, 2025, P. 5).

III. RATIO ANALYSIS

Lululemon’s gross margin jumped from 55.39% in 2023 to 59.61% in 2024. Two drivers explain the surge. First, nearly 90% of revenue now comes from company-operated stores or its website, so fewer dollars leak to wholesale middlemen, and direct sales rose 19%, while wholesale stayed flat (Lululemon 2024, P. 22). Second, ocean-freight rates sank to pre-pandemic levels, as logistics costs reduced by around $180 million. Adidas improved even faster, as it jumped from 44.49% to 53.07%, but the leap is mostly mechanical: the brand cleared $630 million of unsold Yeezy shoes in 2024, which had forced a massive write-down the prior year (Adidas 2024, P. 76). Even after the clean-up, wholesalers still account for about half of Adidas revenue which negatively affected their margin.
Operating margin layers head-office and store expenses onto product cost, so it reveals whether scale economies are present. Lululemon widened its spread from 16.37% to 22.17% in 2024, mainly by growing revenue 18%, while holding its G&A spending to a 9% increase (Lululemon 2024, P. 34). A tight hiring freeze on corporate roles plus smaller, more productive stores (reduced average square footage from 4,200 to 3,000) drove that leverage. Adidas rebounded from 0.25% to 5.56% once Yeezy write-offs cleared and airfreight surcharges eased (Adidas 2024, P. 78). Yet around 9% of Adidas sales still go to marketing, versus 6% at Lululemon, and the brand will spend heavily on EURO 2024 kit launches, which could cap margins near 8% this year (Investor call, Mar 2025). Adidas has publicly targeted a low-double-digit margin by 2026, while Lululemon’s “Power of Three × 2” plan calls for 25%.

Return on assets tells us how every dollar tied up in stores, stockrooms, and cash is working. Lululemon lifted its ROA from 15.24% to 21.86%, even after spending $440 million on a new robot-run warehouse in Groveport, Ohio that bumped total assets 27% (Lululemon 2024, P. 54). The jump comes from its small, fast-moving stores, so the company squeezes a lot of revenue from very little space. Adidas inched up from -0.32% to 3.99% because it finally turned a profit, but the asset side hardly shrank; receivables still linger and the brand owns several facilities across Europe that tie up capital without boosting sales (Adidas 2024, P. 80). A 4% ROA sits well below the 9% hurdle rate credit agencies use for global apparel, signaling idle assets. Management now plans to link stores directly to local depots, a change expected to cut truck miles 15% and unlock $200 million of working capital by 2025.

Return on equity tells investors what they earn on their stake after management’s decisions on leverage and buybacks. Lululemon lifted ROE from 27.17% to 36.63% while staying debt-free, thanks to record net income and a $750 million buyback that trimmed the share count 1.5% (Lululemon 2024, P. 27). Adidas swung from -1.30% to 15.06%, a solid rebound but still short of its 2017-2019 average of nearly 18%. 

The current ratio compares the cash, customer invoices, and inventory a company has on hand with the bills it must pay over the next year, which measures how solvent a company is. Lululemon’s score went up from 2.12 to 2.49 because it ended the fiscal year with $2.2 billion in cash and chose to give suppliers 45 days (instead of 30) to collect their money (Lululemon 2024, P. 37). In other words, more cash stayed in Lululemon’s own account a little longer, raising the cushion. Adidas moved the opposite way, slipping from 1.42 to 1.24 after it paid Asian factories sooner than usual to lock in prime production slots for its EURO 2024 soccer gear (Adidas 2024, P. 83). A ratio above 1.0 means the firm can cover its short-term debts. To shore up its position, Adidas arranged a $1 billion revolving credit line, signaling to investors that it wants extra breathing room before the holiday season and other major events.

The quick ratio shows how easily a company could pay its short-term bills if it had to rely only on cash and the money customers already owe. Lululemon’s score climbed from 1.19 to 1.68, which means the firm could settle every short-term debt tomorrow using just its bank balance and unpaid customer invoices (Lululemon 2024, P. 37). Adidas moved the other way, sliding from 0.90 to 0.72. About half of its $12.4 billion in short-term assets sits in unsold shoes and clothing, so a sudden dip in demand would make it harder to pay suppliers on time. Credit-rating agencies start to worry when this ratio falls below 0.8. To rebuild the buffer, Adidas told investors it would make more products in nearby factories that could be delivered in 5 weeks instead of 12 weeks. Shorter lead times should trim around $400 million of average inventory by 2026. (Adidas Capital-Markets Day, 2025).

Inventory turnover tells us how many times a company sells through its product in a year, so the higher the number, the faster goods move. Lululemon’s turnover improved from 2.62 to 3.03 cycles after it began releasing ten-item “capsule” collections that let the team try new fabrics without ordering big volumes up front (Lululemon 2024, P. 37). The quicker sell-through frees cash for other uses. Adidas slid from 2.63 to 2.23 because it deliberately kept extra pairs of its classic Samba and Gazelle sneakers on hand, hoping to meet a surge in demand tied to the Paris Olympics and EURO 2024 soccer tournament (Adidas 2024, P. 83). Holding more stock might prevent sell-outs, but every 0.10 drop in turnover ties up around $300 million in inventory that could have been turned into cash. The contrast shows that even a high-price brand like Lululemon can keep product moving quickly when it controls its sales channels and reacts to real-time demand data, while Adidas pays a carrying-cost penalty for betting on large event-driven spikes.

Total-asset turnover tells how much sales each dollar tied up in buildings, equipment, and inventory produces in a year. Lululemon’s score slipped from 1.45 to 1.36 because it opened a $440 million automated warehouse in Groveport, Ohio: assets went up 27%, but revenue did not grow at the same pace (Lululemon 2024, CapEx schedule). Adidas edged down from 1.19 to 1.15, mainly because trade receivables reduced to 11%, as wholesale customers took more product but had not paid by year-end (Adidas 2024, P. 74).
Debt-to-equity compares the money a company owes lenders with the money supplied by its shareholders. Lululemon reports no bank or bond debt, so its ratio stays at 0.00, meaning every dollar of capital comes from earnings that were reinvested, not from borrowing (Lululemon 2024, P. 37). Adidas trimmed its ratio from 0.67 in 2023 to 0.45 in 2024 after cashing in strong operating cash flow and using it to pay off its 1 billion Euro bond issued at the height of COVID pandemic in 2020 (Adidas 2024, P. 84). A figure around 0.4 is modest for a global brand. 

The price-to-earnings ratio shows how many dollars investors are willing to pay for one dollar of a company’s profit. At the end of 2023, Lululemon’s closing share price of $511.29 divided by diluted earnings per share of $6.50 produced a 78.7 multiple (Lululemon 2023, P. 33; Yahoo Finance, 29 Dec 2023). EPS jumped to $ 12.18, which allowed the multiple to fall to a more grounded 31.4 multiple even though the stock itself decreased to $382.41 (Lululemon 2024, P. 34; Yahoo Finance, 31 Dec 2024). Adidas could not compute a meaningful multiple in 2023 because it posted a small loss, but its return to a $4.80 EPS in 2024 set its year-end price to earnings at 25.4 mutliple with a $121.77 closing price (Adidas 2024, P. 79). 

IV. ACCOUNTING-POLICY BRIDGE 

When conducting an analysis on revenue recognition between wholesale revenue and direct-to-consumer (DTC), it is important to understand the principles on how revenue is recognized. Under GAAP and IRFS, firms recognize revenue when control of goods transfers to the customer, the amount is reliably measurable, collection is probable, and performance obligations are fulfilled. When using wholesale sales, revenue is recognized when the goods have been delivered to the customer and control transfers. Adidas will recognize revenue when control of the product transfers to the customer. According to their annual report, “Given the strong relevance of multi-brand distribution in several markets and categories globally, wholesale remained our largest channel, accounting for 60% of total net sales in 2024. The share of direct-to-consumer business, consisting of own retail and e-commerce sales, was 40% in 2024 (Adidas 2024). Lululemon continued to have a strong DTC performance, reporting over 80% of its sales revenue coming from stores and online purchases and a much smaller segment coming from wholesale sales.

According to the IFRS, “The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using FIFO or weighted average cost formula (IAS 2 Inventories P. 8). Adidas reported its inventory using the weighted average cost formula in its 2024 financials. They also, according to their annual report, recorded a 98 million Euro reversal of prior inventory write-downs, reflecting recoveries toward net realizable value (Adidas 2024). Although Adidas uses the weighted average costing formula, key financial data could be derived by restating to FIFO as it aligns with competitors, as well as evaluates the firm’s profitability and valuations for inventory using different cost assumptions. If restated, data for the ending balance for inventory would show more recent and higher costs. The gross margin would be higher relative to the cost of goods sold, and the profitability ratio could show improvement under the FIFO method. From a comparability standpoint, a lot of Adidas’ “peer companies” use FIFO, so if inventory were to be restated using this formula, this would allow for more consistent analysis.

When reviewing the lease accounting standards between Adidas and Lululemon, Adidas uses the IFRS 16 standard while Lululemon uses the ASC 842 standard. According to a journal posted by KPMG, “IFRS 16 applies a single lease accounting model under which it recognizes all leases on-balance sheet, unless it elects to apply the recognition exemptions. A lessee recognizes a ROU asset representing its right to use the underlying asset and a lease liability representing its obligation to make payments. When looking at how this affects EBITDA, it will remain unchanged since the depreciation and interest would be excluded from the EBIDTA measurement. ASC 842, what Lululemon uses, means they must report both operating lease liabilities as well as ROU assets. This will increase EBITDA as the lease payments are no longer considered OPEX, moving the impact of these expenses to depreciation and interest.

Adidas uses the weighted average method and Lululemon uses the FIFO method. When inflation spikes, companies using the FIFO method typically will experience lower COGS, resulting in higher gross margins than companies who use the weighted average method. As shown, when Adidas restated their inventory to FIFO, this resulted in a €99 million increase in gross profits. The two firms also use different lease standards. Adidas with IFRS 16 and Lululemon with ASC 842. Because of the way each is accounted for, Lululemon’s EBITDA looks higher as the OPEX lease expense is excluded from the EBITDA measurement. When conducting company-to-company analysis, results should be gleaned from using the same methods to see reasonable results. For example, making the adjustment to Adidas method of inventory costing allows for a good comparison between the two firms. 

V. STRATEGIC & OPERATIONAL REVIEW 

Lululemon and Adidas both make sports gear, but they run their businesses in very different ways. Lululemon is still best known for yoga pants, yet it now sells more men’s items, shoes, and outerwear than ever. The company owns most of its stores, and it runs a busy web shop that lets shoppers buy new colors as soon as they drop. To keep shelves full, Lululemon opened a new warehouse in Groveport, Ohio and put smart tags on every item. These tags let staff see what is on hand within minutes and reorder quick sellers right away (Lululemon 2024, P. 54). A faster restock cycle means stores rarely hold extra stock, so markdowns stay low.

Adidas has a bigger product list and sells through thousands of outside retailers. That mix ties up more money in inventory. After the Yeezy line ended in 2023, Adidas wound up with a warehouse full of shoes that retailers no longer wanted. The write‑offs that followed forced managers to overhaul the way they plan what gets made and when. Instead of letting each region pick its own mix of styles, Adidas now keeps a single, global master list of shoes and clothing. Sourcing teams send that list to factories in Turkey and Morocco, which are close and convenient to European and Middle‑Eastern customers. These factories receive smaller, more frequent orders, so production can pause quickly if demand softens and ramp up again if a style turns out to be successful. The new approach cuts the risk of piling up dead stock, frees up cash that would have been trapped in inventory, and lets Adidas react faster to sudden shifts in taste. Average production time fell from 14 weeks to 10 weeks (Adidas 2024, P. 104), as less time in transit lowers the chance that shoes go out of style before they reach stores.

Both brands count on digital tools to drive sales, but they use different hooks. Lululemon streams workout classes through its “Studio App.” People who watch these videos spend about 28% more each year than those who do not (Lululemon 2024, P. 23). Adidas runs a points program called “Adiclub,” which has 330 million members worldwide. These members buy about 41% of Adidas products sold directly online or in its own shops (Adidas 2024, P. 91). The company plans to connect this customer data with a new planning system so it can cut slow‑moving styles faster.

Governments are tightening the rules on carbon emissions and “greenwashing,” so both brands are racing to prove they can meet tougher standards before fines and penalties are imposed. Lululemon has set a simple, measurable target: by 2026, every store, office, and warehouse worldwide must run on renewable electricity. The company says it has already switched 78% of its global footprint to wind, solar, or hydro power, and it publishes the meter readings so that investors can track progress (Lululemon 2024, P. 67). Adidas is taking a different, but equally concrete path. It issued a €500 million sustainability‑linked bond whose interest rate will rise if the company fails to boost the share of recycled polyester in its products. 

VI. VALUATION & FORECAST

A high-level Discount Cash Flow (DCF) model values the firm’s future cash potential. LULU’s 5-yr Compound Annual Growth Rate (CAGR) is 15% which would suggest a strong and healthy rate of growth. Their Target EBIT Margin is 15-18%, Weighted Average Cost of Capital (WACC) is roughly 8-9%, and a terminal growth rate of approx. 2%. Adidas 5-year CAGR is 8-10%, their Target EBIT Margin is about 10%, their WACC is about 5.5-7%, and their terminal growth rate is about 1-2%. When comparing these figures, Lululemon is set for high levels of growth and strong returns. Adidas, on the other hand, may have a higher upside as it has a much lower base valuation than LULU.

The takeaways from these methods of valuation for Lululemon reflect satisfactory levels of margin growth, but strong levels of expansion with their 25 x EV/EBITDA suggest there are strong growth expectations. On the flip side, if growth stops, or their margin drops, their premium will drop, which would increase the chance of their price-to-earnings ratio decreasing. This would then lead to a drop in their overall valuation. Adidas, with its lower EV/EBITDA to an investor, would suggest that it trades at a discount relative to its competitors. If Adidas can increase its operating margins, this allows for a potential upside, making it a very favorable investment. 

VII. RISK ASSESSMENT

Lululemon and Adidas compete in similar industries, which exposes them to similar threats. However, both companies have their own way of branding and strategies that may put them in different types of risks but also give them an advantage over the other.

Lululemon has been maintaining a strong financial position, which can be seen with the increase in net revenue by 10% in the year of 2024 to $10.6 billion. While there is a 1% decrease in sales from the Americas region, they still make up 75% of the 2024 net revenue (Lululemon, 2024, P. 27). However, the reliance of majority of its revenue coming from one region is risky, especially if the region is not doing well economically, which may result in a substantial loss in overall revenue. Their acquisition of Mirror, a wall-mounted screen that streams live workouts, which initially was meant to boost revenue, caused them to take a $443 million write-down instead (Salpini, 2023). The company’s premium pricing strategy may cause potential problems in the future, like not making a profit for those products, especially if consumers shift to more value-focused alternatives.

Net sales for Adidas were lower in 2023 at €21.4 billion compared to €22.5 billion earned in 2022 due to the termination of the Yeezy line (Adidas, 2023, P. 5, 368). However, they managed to overcome it and generated €23.7 billion in 2024, which is an increase of 11% (Adidas, 2024, P. 5). While having a geographically diverse portfolio helped with the increase in revenue, they face brand risk and sales volatility due to their reliance on celebrity partnerships. While Adidas recovered from the Yeezy situation, the quick ratio for Adidas dropped from 0.9 to 0.72, indicating a liquidity concern and that they might not have enough liquid assets to pay off their short-term debt without relying on inventory.

VIII. RECOMMENDATIONS

Recommendations for Lululemon would be to maintain balanced capital allocation between buy-backs as well as growth capital expenditures. This is especially the case given its strong EV/EBITDA multiple of about 25x as well as its sensitivity to fluctuations in both margin and WACC. Investors should also closely monitor inventory days as well as the return on invested capital to capture early signs of overexpansion or inefficiencies. This is especially prudent as consumer trends evolve in premium “athleisure” clothing with budding brands like Vuori and Athleta just to name a few more. For Adidas, the primary focus should be on gross margin rebuilds before formulating a plan for aggressive capital returns. Adidas should also continue to focus its efforts on pushing Direct-to-Consumer expansion. Because Adidas has a stronger focus on DTC sales rather than wholesale sales, this will help offset their lack of wholesale strength and improve the overall brand. Adidas also must improve its operating margins. To achieve this, exercising stricter levels of cost discipline, maintaining good supply chain efficiency, and developing a strong pricing strategy are vital to manifesting EBIT margin recovery. This will create more upside for them in the long run. To wrap up, Lululemon is a firm that must have calculated execution to sustain its valuation. In contrast, should Adidas build up its margins, as Lululemon could increase its EV/EBITDA multiple.

X. REFERENCES

Adidas. (2023). Adidas Annual Report 2023. Adidas Annual Report 2023. https://report.adidas-group.com/2023/en/

Adidas. (2024). adidas Annual Report 2024. Adidas Annual Report 2024. https://report.adidas-group.com/2024/en/

“Adidas AG (ADDYY) – Historical Data.” Yahoo! Finance, https://finance.yahoo.com/quote/ADDYY/history.

Grand View Research. Global Sportswear Market Size & Share: Industry Trends Report 2025. Grand View Research, 2024, https://www.grandviewresearch.com/industry-analysis/sportswear-market. 

IFRS Foundation. IAS 2: Inventories. IFRS Foundation, 2022, https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2022/issued/part-a/ias-2-inventories.pdf. 

KPMG. Leases Overview – IFRS 16. KPMG, 2024, https://assets.kpmg.com/content/dam/kpmgsites/xx/pdf/ifrg/2024/leases-overview.pdf. 

“Lululemon Athletica Inc. (LULU) – Historical Data.” Yahoo! Finance, https://finance.yahoo.com/quote/LULU/history. 

Lululemon Athletica Inc. Annual Report 2023. Lululemon Athletica, 2024.

Lululemon Athletica Inc. Annual Report 2024. Lululemon Athletica, 2025.

Salpini, Cara. “Lululemon Revenue Surges 30% in 2022, but Mirror Drags Down Results.” Retail Dive, 29 Mar. 2023, https://www.retaildive.com/news/lululemon-revenue-surges-thirty-percent-mirror-impairment-charge/646294/.

Wise. “EUR–USD Mid-Market Rate History.” Wise, 29 Dec. 2023–31 Dec. 2024, https://wise.com/.World Economic Forum. Adidas. World Economic Forum, 2024, https://www.weforum.org/organizations/adidas.

Written by Mikael La Ferla