By:
Molly O’Neill, 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 market leader that
operates in Canada, United Sates, Asia Pacific, and internationally. LULU designs,
manufactures, and distributes retail of athletic apparel and accessories.
• LULU operates in two business
segments: Company-operated stores (491 stores) which makes up 83% of sales and Direct-to-Consumer
which makes up 8.1% of sales.
• Lululemon reached its
goal of $4 billion in revenue, which is a 20% increase from FY2018.
• Lululemon’s strong brand
presence, has opened the door for new market opportunity in the fitness class
space.
• LULU’s stock price has dropped
7.01% over the past 52 weeks, due to the Coronavirus Pandemic.
Key
points:
Lululemon Athletica
continues to beat analysts’ expectations. FY2019 LULU’s fourth quarter revenue
was up 20% to $1.4 billion and full year revenue of $4 billion. Moreover,
Diluted EPS was $2.28 in the fourth quarter, compared to FY2018 of $1.85 EPS. In
2018, LULU initiated the “Power of Three Growth Strategy.” The 5-year plan is to
double the size of its men’s revenues, double its digital revenues, and quadruple
its international revenues. Management has expressed they are on track to meet
their goals by 2023.
Since March 16th,
all Lululemon stores have been closed in Europe and North America. Although, LULU’s
digital business has remained strong through Q4 and the pandemic. LULU does not
have accurate 2020 guidance, because the of the unknown nature of COVID-19. All
the LULU stores in China are open today, with the expectation of the Wuhan
location. LULU is seeing sales pick up dramatically, from China, and expects to
see the same results from currently closed stores.
Lululemon remains in
healthy condition, faced in the environment today because of their liquidity
position. LULU currently holds over $1 billion in cash on their balance sheets
and has no long-term debt. Likewise, they have a $400 revolver credit facility
with 3-years to maturity left. Similarly, LULU is driving their e-commerce
channels during the pandemic. For example, the firm is redeploying their money that
would be used for store events into digital marketing, to drive e-commerce performance.
What
has the stock done lately?
Lululemon stock was trading
at a record of $264.44 on Feb. 20, 2020. Since Lululemon announced the closure
of stores in Europe and North America the stock has dropped 2.29%. Today, Lululemon
is trading at $181.25, still beating the S&P500.
Past
Year Performance:
Over the past 52 weeks, LULU
has had returns of 20% and a price change of 7.01%. This February, LULU was at its
high at $264.44. March 13th, LULU hit its 52-week low at $134.24.
Following the dip in July 2019, LULU has been fluctuating around $200.00.
My
Takeaway
LULU as added to the
international AIM fund in April 2016 at a price of $65.48, with an initial
price target of $76.63. Since Lululemon was pitched, LULU’s price has tripled. Lululemon
has opened up 491 stores from Canada to Asia. With a strong 5-year plan in
place and an emphasis on growth, LULU has positioned themselves as a strong
competitor.
I believe Lululemon’s plan during the pandemic, to redeploy their
spending into their digital outlets, will help generate strong earnings. Even though
the stock has not been performing its best, I believe LULU is still valuable to
the international AIM fund. LULU has the potential for future growth that outweighs
negative effects the COVID-19 pandemic presents.
