By: Stephen Lane, 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. (NDAQ:LULU) is a designer, distributor, promoter and
retailer of athletic and activewear apparel. They main consumers are women in
the US, Canada and Australia. The company currently has two brands Lululemon
and Ivivva and, has a total of 406 stores.
• LULU saw positive operating income growth
for the first time in three years all thanks to their long-term strategies. Management is targeting just over a 20%
operating margin and a 50% gross margin.
• The Athletic and Activewear market has
seen a steady increase and while the marketplace becomes more diluted, LULU has
been able to take a leading position with differentiating products and store
experience.
• Management is looking to expand into more
men’s clothing. They claim that there is potential for $1 billion of sales from
men’s, twice as much as today.
• LULU has been performing well in a very
difficult industry and is expected to continue to succeed in the future with
strong market positioning and prime growth opportunities.
Key points: LULU’s management continues to be
optimistic. They have achieved a premium position in a growing market. The market
is expected to reach $231.7 billion by 2024. This growth is driven by the
increase in overall knowledge of health and the growing portion of the
population that is concerned about living a healthier life style. LULU can
remain a leader because of their strong product assortment, online presence and
unique in-store experience.
The
company has successfully differentiated their product assortment by providing
consumers cross-functional apparel that is at the cutting edge of fashion while
incorporating the newest technology. They have achieved a wide consumer base
and provide a high-quality product at affordable prices. When it comes to their
online presence, since they released their application a year ago they have
seen a strong growth of online sales. LULU’s online content gives consumers
better visuals, videos and descriptions of their products. In-store they
provide their customers a very educational experience allowing them to learn
about the benefits of each product, encouraging trials and repeated visits.
As
observed above, LULU is well established in North America and Australia:
however, they plan on expanding overseas. There is a large amount of
opportunities internationally and analysts have stated that there is potential
for 300+ locations up from the 70 in 2017. In addition to international
expansion, LULU has growth opportunities for men’s. The market for men is
extremely diluted currently with players like Nike, Adidas and Under Armour.
That being said, management is expecting to double sales from men’s by
providing more marketing dollars toward their male brands and allowing for more
men’s space in stores.
Management
has made a great effort to improve their margins by lowering expenses. They expect
gross margin to be around 50% and operating margin to be around 20%. Management
has successfully revitalized the company and shows great promise moving
forward.
What has the stock done
lately?
LULU’s
management took very conservative outlook on 2017 and beat their earnings each
quarter. In addition, it is expected that their last quarter was far better
than previous years. Because of this, they are expected to beat earnings and
have seen a quick rise in their share price as a result. Several firms have also
upgraded LULU to a buy and outperform.
Past Year Performance:
LULU
has increased over 60% in value over the past year. The stock recently hit its
52-week high of $83.98 and remains close to it. The stock has been volatile ranging
from $47.26-$83.98 with a volume of 1,685,998. The company is close to breaking
their 5-year rut and remain a strong element of the AIM International Equity
Fund.
My Takeaway
LULU can finally take a deep breath after
successfully climbing their way back from hard times. They have achieved the
52-week high recently and only look like they will continue to be a strong
component of our AIM International Equity Fund. With a differentiated product
assortment, unique online and in-store experience, overseas and men’s growth
opportunities and strong improved margins, LULU has positioned themselves very
well moving forward. Because of these factors Lululemon Athletica, Inc. remains
a solid buy and is an important share in our AIM International Equity Fund.
