Harley-Davidson, Inc. (HOG), Lululemon Athletica inc. (LULU): The Oddest Couple in the Market

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Think of the standard Hollywood “meet cute” rom-com, tough biker guy meets mellow yoga girl. What could they possibly have in common? Ninety minutes of misunderstandings and hilarity ensue. Motorcycle manufacturer Harley-Davidson, Inc. (NYSE:HOG), meet yoga and athletic apparel maker Lululemon Athletica inc. (NASDAQ:LULU). Both companies encourage an all-encompassing lifestyle and both have been on a tear in the last few years.

Slight digression but bear with me. On a trip to a Caribbean island, I noticed two large signs in the Customs waiting area. One said, Welcome Visitors but was dwarfed by a much larger sign, Welcome Home, Belongers. This craving and need to belong to a group of kindred spirits is what has driven the success of both companies. Especially, in the case of Harley-Davidson, which was faced with increasing Japanese competition in the 1980s and imminent bankruptcy after management bought the company back from AMF in 1982. Harley-Davidson, Inc. (NYSE:HOG) has grown its company promoted Harley Owners Group to over a million members worldwide since 1983 and raised the Harley hog to cult status.

In the corporate parking lot at Milwaukee headquarters, signs prominently exhort No Cages (biker translation: no cars that box you in). An overwhelming number of employees are Harley owners and riders. It’s not the kind of corporate culture that sees customers as a distant faceless populace but more a “we are them and they are us” mentality.

Never Lonely Again

The Harley Owners Group started in 1983 is a big part of that. Buying a Harley is an entree into a world of social events including fish frys, ladies garage nights, men’s motorcycle boot camps, charity events with live music, food, and prizes, rallies, clubs, and motorcycle parades. A Harley rider need never be lonely. Kickstands up!

This culture of belonging is one the company has tried to make more and more inclusive — reaching out to women, Latinos (calling themselves Harlistas) and younger men to broaden their current customer base of more affluent (household income over $89,500) Caucasian men over 35.  As described in the latest 10-K, this is how the company has grown its share price from just above $10 in 2009 to quintuple to a multi-year high of $54.62 on Jan. 28.

The forward P/E is 13.10 with a .98 PEG. The company recently raised its dividend by 35% for a current yield of 1.60%. Harley was founded in 1903 and like any good Midwestern company has low corporate risk on all metrics. The company operates in two separately managed divisions: Motorcycles and Related Products and the Financial Services division, which offers financing and insurance and other point of sale products for Harley buyers.

Harley & Lulu

Actually sounds like a cute chick flick, doesn’t it.  But seriously, what does our hero Harley have in common with Lulu? Lululemon Athletica inc. (NASDAQ:LULU) was also founded by an enthusiast, Chip Wilson, who after finding yoga as thrilling as surfboarding and surfing (really?!) started making workout apparel using stink-free and stretchy, more comfortable fabrics. The company continues to explore more functional fabrics as it extends its line to runners, swimmers, and bicyclists.

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