Shares of Lululemon Athletica (LULU) are falling by over 23% after the company reported fourth-quarter results and first-quarter guidance that failed to impress the Street. Apparently, the company lacked the color assortment to escape the same wrath that befell Nike (NKE) and Under Armour (UAA, UA). Perhaps Lululemon go with the color blue next quarter? (See also: Lululemon Sinks on ‘Slow Start’ to 2017.)

When you get down to it, the fall should not be all that surprising, should it? The businesses of NKE, UA, and LULU aren't entirely the same, but they aren't all that different, either. They sell sporting apparel. The correlation between LULU and NKE is only 0.61, while the difference between LULU and UA is only 0.59. It's certainly not a perfect correlation, but not too far off, either.

This chart speaks volumes and does not paint a rosy picture for LULU. The chart is adjusted for the month the company reported results, not the fiscal quarter. What we see here is that UA seems to have peak sales growth about two-quarters ahead of LULU. In fact, when you adjust for UA's lead time, the correlation between the two companies jumps to 0.89 with a R^2 of 0.79.

In this chart, we something similar. NKE peaks in revenue two quarters ahead of LULU as well, just like UA. In fact, the correlation between LULU and Nike when adjusted for this lead time jumps to 0.89 with a R^2 of 0.88.

Clearly, for whatever reason, there is a lead time for UA and NKE over LULU. Maybe people buy their sneakers and sweatshirts first and then purchase the matching leggings later. At the end of the day, LULU is selling sports apparel like UA and NKE. There should be no surprise.

LULU Chart

LULU data by YCharts

Just look at the YTD charts for these three companies. When UA fell around the beginning of February, neither NKE or LULU blinked. When NKE fell in the middle of March, UA dropped and LULU seemed to get by unscathed. In fact, LULU stock was accelerating higher into the earnings call.

Companies do not live in bubbles; one company is not immune to another company's problems. Sometimes, there is a case of another company taking and winning market share, but until proven, it is usually not the case.

In fact, a company like NKE is much more equipped to handle a storm because it has such a diversified portfolio and global reach. If one segment of the market is not performing well, they have other segments to fall back on.

It is what it is. Live and learn.

*Data Complied from YCharts

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