Few can accurately predict the future of fashion, or which clothing brands will be publicly traded. If an investor in 1998 had made a bet on a small Vancouver yoga studio that sold athletic clothing, the gamble would have been worthwhile.
Lululemon Athletica is still a great bet two decades after its founding. Analysts predict Lululemon will make a lot of money in the coming years.
Lululemon, a company that produces technical athletic clothing inspired by yoga and designed for both men and women, is known as athleisure. Chip Wilson founded Lululemon in the late 90s. In 2000, the company opened its first store.
In July 2007, LULU went public again with an initial offering of 18,2 million shares priced at $18 to raise $327,6 million. The shares of Lululemon closed at 29,98 on July 30, the day they were listed for the first time at the New York Stock Exchange.
Lululemon's stock has increased 13-fold in value since 2007, and it now has 655 stores. It competes with the industry giants Nike (NKE), Adidas(ADDY), Under Armour(UAA) etc. Analysts predict that Lululemon's annual profits will increase 119% in the next five-year period, to $22.10 a share. Wall Street predicts revenue to soar 76%, reaching $14.29 billion by 2027.
LULU Stock: A Plan For Success
Lululemon's five-year plan for growth was launched last spring. The executives nicknamed it "Power of Three x2". The strategy aims to double the company's net revenue from $6.25 billion in 2021 to $12.5 billion in 2026.
To achieve this goal, executives have stated that the focus will be on product innovation and consumer experience. They also plan to expand their market. Lululemon is also focusing on double its men's product segment. It also plans to quadruple its international revenue and double its direct-to-consumer sales by 2021.
Calvin McDonald, the chief executive of Lululemon, told investors in the company's most recent earnings conference that the plan assumes an annual compound growth rate (CAGR) of 15%. Lululemon's revenue grew 30% in 2022 compared to 27% and 21.5% on a CAGR basis.
McDonald stated on March 28 that "it is a testimony to the strength and power of our brand" that we were able for the entire year 2022 to surpass our annual revenue target. "We achieved these outcomes despite the challenging macro background, supply chain problems and the pressure from Covid-19 in China."
McDonald said "business is good and we look forward to a strong year in 2023."
Lululemon Stock Fundamentals
According to MarketSmith's analysis of a chart, LULU has formed a cup-base and is working towards a handle. Lululemon's daily chart shows a cup with handle and a slight extension above the 371.36 purchase point. On a weekly chart, LULU is hovering near a 386.80 purchase point.
Lululemon is up around 34% from its March 15 low, when it was 286.58. Lululemon raised its outlook for 2023 on March 28 after exceeding earnings and revenue expectations for the fourth-quarter. The next day, LULU's stock price soared 12.7%.
Lululemon's earnings increased by nearly 31%, to $4.40 per share, in the fourth quarter. Revenues grew 30% to $2.8 Billion. Gross margins dropped 300 basis points, to 55.1%. Gross margins adjusted fell 70 basis points to reach 57.4%. Inventory levels were 50% higher than a year ago, at $1.4 billion. This is after third-quarter inventory jumped 85% to $1.7 Billion.
Lululemon Saying Goodbye To At-Home Fitness?
Lululemon, which was formerly called Mirror, appeared to be optimistic earlier this year about diversifying their business with memberships.
Lululemon purchased Mirror and its interactive exercise platform for $500 million in the surge of at-home fitness options that will occur during 2020.
Lululemon announced its plans to expand Lululemon Studio's premium tier as it closed out 2022. This will allow guests to access digital content through a new app that launches in summer 2023 for a reduced monthly fee.
Lululemon said at the end March that it would "evolve" its business strategy for at-home fitness, with plans to concentrate on digital apps-based services. Lululemon reported a $443-million impairment charge for Mirror in its fourth quarter earnings.
Lululemon's desire to sell its at-home fitness business was reported in the media on April 18. Bloomberg News reported that Lululemon had been working with an advisor to solicit interest for the business. CNBC reported that Hydrow, a startup company that manufactures in-home rowing equipment, is interested in a Lululemon deal.
Analysts weigh in on LULU
Alexandra Straton, Morgan Stanley analyst, says Lululemon's "top-line growth" is supported by a number of factors such as market share gains.
In a recent client note, Straton stated that "LULU dominates [North America's] athletic yoga apparel due to its unique branding and fashionable products." "Covid accelerated the consumers' focus on health & wellbeing & fashion casualization. Both of these should benefit LULU."
TD Cowen analyst Dan Brennan has recently given Lululemon a "outperform rating" and increased the price target from 500 to 525. Brennan wrote in a note to clients that the sales trends "suggest an optimistic read of the international mix change."
Bank of America analyst Lorraine Hutchinson raised Bank of America's LULU price target from 410 to 450 and maintained a rating of "buy" on the shares. Hutchinson stated that Lululemon is continuing to "balance" its traditionally grassroots-oriented marketing campaign with several more meaningful ones.
Hutchinson said that Lululemon’s efforts to gain traction, and China are key drivers near- and long-term.
What to expect in 2023 for LULU stock
Lululemon expects to earn $1.93 to $2.0 per share in the first quarter, with revenue between $1.89 and $1.93 billion. This is an 18% increase.
Lululemon anticipates sales between $9,3 billion and $9,41 billion in 2023, a 15% increase. It predicted that earnings would be $11.50-$11.72 a share by the end of the year.
Analysts expect earnings to increase 31%, to $1.94 a share, in the first quarter. Sales are expected to rise 19%, to $1.91billion. Wall Street predicts that earnings will reach $11.56 per share in 2023, up 15% from 2022. The projected revenue will increase by 15%, totaling $9.31 billion.
Analysts expect Lululemon's profits to increase in the next few years, and so will the market for athleisure apparel.
Keep an eye on China
According to a Grand View Research study, the U.S. market for athleisure is expected to grow by 8.3% annually, from $87.2 billion dollars in 2022, to $140 billion dollars in 2027. According to other market research, the athleisure industry is expected to grow at around 10% per year through 2023.
Lululemon is also looking at China. The CEO of Lululemon told investors that the company's potential in China "continues to be significant".
McDonald, an analyst in late March, said: "As Covid-19 impacts normalize, our momentum is accelerating and we are excited about the opportunities in the area in 2023 and beyond."
Lululemon is ranked first in the IBD Retail-Apparel Industry Group. The shares have a Composite Rating of 97 out of 99. LULU's stock has a Relative Strength rating of 92, an exclusive IBD Checkup gauge to measure share-price movements. Lululemon's stock has an EPS of 98.