By:
Riley Pollard, 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) is a designer and distributor
of athletic apparel and accessories for men, women and female youth. They
operate under two brands: Lululemon and Ivivva. Lululemon specializes in “healthy
lifestyle inspired” apparel for men and women and Ivivva specializes in
athletic apparel for female youth.
• Since Q2 of FY2018, LULU
has opened 45 new stores: 21 stores in North America, 16 in Asia, 5 in Europe
and 3 in Australia/New Zealand.
• Net Revenue increased
by 22%, or $159.9 million, in Q2 of fiscal 2019 from Q2 of fiscal 2018.
• LULU recently introduced
‘Practice’, a paid loyalty program that they implemented in key markets in 2019
and have plans to expand by 2021.
• A stock buyback of up
to $500 million was announced in January 2019, increasing their stock repurchase
program that previously authorized buybacks of $600 million in June 2018 and
$200 million in November 2017.
Key
points:
Lululemon
Athletica continues to exceed analysts, and their own, expectations. In their
five-year plan, they forecast annual revenue growth “in the low teens”, whereas
analysts are predicting 15% growth for the next year. These are both
conservative estimates considering the 22% annual growth they reported in their
recent 10-Q.
LULU
has growth in mind. They have been steadily closing Ivivva stores since 2017,
with the intent of focusing more on menswear and international sales. Set to
close the few remaining Ivivva stores in 2020, LULU will be able to focus on
their goal of doubling their men’s business and online sales, while quadrupling
their international business by 2023. They have already made strides towards
their international goal, as 24 out of the 45 stores opened in the past year
were opened outside of the United States.
While
LULU already has a cult-following, their newly implemented loyalty program, Practice,
has the potential to amass more loyal customers and take LULU’s sales to new
heights. Set to expand to more locations in 2020 and “hit a full stride” by
2021, Practice has already garnered more new customers than expected in their
test markets.
What
has the stock done lately?
LULU stock hit a record
high of $209.02 on October 16th, nearly double its 52wk low of $110.72. While
the stock was down 6% as of November 5th, this decline has proven temporary.
LULU closed at $204.13 on November 8th.
Past
Year Performance:
YTD,
LULU has outperformed the market substantially. While the S&P 500 has seen 23%
growth, LULU boasts over 65% growth in comparison. EPS were up to $.96 in Q2 of
FY2019, compared to $.71 the year prior. I expect we will be seeing further growth
in the stock price when Q3 earnings are released December 9th.
Source:
FactSet
My
Takeaway
LULU
was pitched and added to the international AIM fund in April 2016 at a price of
$65.48, with an initial price target of $76.63. Since then, LULU’s stock has more
than tripled in price and surpassed its price target by leaps and bounds. LULU
management has a solid five-year plan in place that they have actively been working
towards achieving. They have seen unprecedented growth in the past year and
show no signs of stopping. That’s why I believe that when life gives you
Lululemons, you should buy their stock. LULU is a valuable addition to the AIM
International Fund and should stay as such for the foreseeable future.
Source:
FactSet
