By:
Mary Kate Simon, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• Lululemon Athletica Inc. (NASDAQ:LULU) designs and provides athletic
apparel and accessories with a focus on clothing for yoga or other “sweaty
endeavors” for their company-operated stores and directly to their individual
customers in the United States, Canada, and internationally.
• As millennials continue
to grow older, their demand for LULU products continues to grow with them.
• “Athleisure” is a major
movement where athletic clothes take steps outside the walls of the gym and are
worn as everyday clothes for both men and women.
• Management reaffirmed
its guidance to achieve $4 billion in revenue by the year 2020.
• Lulu posted a 97% YOY
EPS growth and has a 25% underlying sales growth.
Key
points:
Lululemon Athletica continues to grow and increase
their market share. Although some of their major competitors, such as Nike and
Adidas, take up a much higher share, LULU is well positioned in the industry as
a differentiated “sweaty pursuits” company. In the past, LULU has been highly
focused on selling to younger women. However, LULU continues to break barriers
in whom they sell to. There continues to be a heavy increase in men’s sales,
increasing 80% in the last few years.
Recently, LULU has
accumulated a new CEO—Calvin McDonald. McDonald is a growth-oriented leader
with a track record that proves this time and time again. His goal is to
continue to integrate the LULU brand with customers by giving them what they
want: great quality clothes and easy access to buy them. A strong consumer
mindset, a performance-driven approach and success in developing people,
McDonald has helped LULU grow into a stronger brand, with both guest loyalty
and passionate employees.
Including both e-commerce
and store expansion, LULU continues to expand internationally with a 47% YOY
growth in revenue outside the US. Their international expansion doubled with
their growth digitally, LULU continues to break into new markets. Their digital
ecosystem is getting numbers never seen from the company. Direct to customer
revenue grew 48% YOY compared to their 18% growth in stores.
Product innovation plays
a major role in LULU’s growth. In their Q2 earnings call, there were notes
about how men’s and women’s pants posted comps a little over 30%, while women’s
tops were increasing in the double digits. Customers are responding well to the
new On the Fly product line that bring “athleisure” to another level. This
office travel collection gains customers from Gen X and Baby Boomers. Their
expansion out of only Yoga clothing will help diversify LULU’s product
offerings. This will continue to help build LULU into a lifestyle brand with
deeper customer relationships.
What
has the stock done lately?
Lululemon boasts a
Relative Strength rating of 98 and a Composite rating of 99—the highest
possible rating for a stock. They are releasing their third quarter earnings
report on Thursday, December 6th. This stock has more than doubled
in 2018, given a 52wk high of 164.79 and a low of 65.30. This low occurred at
the beginning of the year and has continued to grow throughout the year.
Past
Year Performance:
Over the first half of
2018, LULU has outperformed the market substantially, gaining 59% compared to a
2% increase in the S&P 500. This rally painted a nice picture for LULU as
they were one of the top retail stocks this year. Lululemon gave their
shareholders plenty of reasons to send the stock higher and higher. Sales have
blown through managements aggressive targets in the last two quarters,
including a 47% YOY revenue growth.
Source:
FactSet
My
Takeaway:
Lululemon Athletica Inc.
has had a year of expansion and growth. The company continues to break through
managements goals and outperform the retail industry. With LULU’s highly
reputable brand equity, they strive to set goals for the stock price over $180.
People are concerned that the price may be currently overvalued; however, this
growth company expanding internationally, increasing in store purchases and
highly surpassing digital sales is not finished yet.
Source:
FactSet
