Nike reigns supreme in the realm of athletic wear – a giant among brands, dominating the athletic footwear sector and boasting the title of the best-selling clothing brand in the U.S. by a significant margin.
Despite the allure of Nike’s stock, there are smaller, faster-growing brands catching the eyes of billionaire investors hungry for growth. Enter Lululemon Athletica (NASDAQ: LULU), positioned as a formidable competitor to the athletic wear giant.
The Surge in Athleisure Popularity
During the first quarter of 2024, billionaire investors exhibited a strong appetite for Lululemon. Figures like Israel Englander of Millenium Management, Ken Griffin of Citadel Advisors, and Jeff Yass of Susquehanna significantly bolstered their Lululemon holdings, spotlighting the brand’s growth potential.
Lululemon has solidified its standing as the premier premium activewear brand, cultivating a devoted following drawn to its patented fabrics, casual designs, and commitment to delivering high-quality, lifestyle-appropriate products. This winning combination of branding and product excellence positions Lululemon as a flourishing business, perpetually expanding its fanbase and driving robust sales growth.
In the 2024 fiscal first quarter, Lululemon showcased its strength with a remarkable sales uptick of 10% compared to the previous year, supported by a 6% surge in comparable sales. Reflecting its profitability, the gross margin climbed to 57.7%, and earnings per share exceeded Wall Street’s projections.
Despite a slight dip in operating margin due to inflationary pressures, Lululemon maintains an enviable industry-leading position, outshining competitors like Nike, Adidas, and Skechers.
Lululemon’s ability to command premium prices for its superior products endows it with resilience amid inflationary challenges, fostering customer loyalty.
Continued Growth Trajectory
Lululemon remains steadfast in pursuing its “power of three x2” strategy, aiming to double men’s and e-commerce sales, quadruple international sales, and double its net revenue from 2021 levels by 2026. Anchored by pillars of product innovation, guest experience, and market expansion, the brand propels forward with a clear growth trajectory.
International markets emerge as a pivotal driver of growth for Lululemon, contributing significantly to its first-quarter comparable sales increase. With international sales comprising 21% of total revenue in 2023, CEO Calvin McDonald foresees this segment’s expansion to 50%, signifying substantial growth prospects.
While Lululemon encountered challenges with flat U.S. comparable sales in the recent quarter due to inventory issues, including out-of-stock sizes and limited color selections, robust demand remains a reassuring sign. Investors should monitor this situation closely for potential trends.
Reaffirming its full-year guidance of an 11% to 12% revenue increase over 2023, Lululemon revised its full-year EPS outlook to $14.37, surpassing Wall Street estimates. This bullish outlook underscores the management’s confidence in the brand’s growth trajectory.
Undervalued Gem?
Despite macroeconomic headwinds and intensifying competition from new entrants and established players like Alo Yoga and Vuori, Lululemon stands out for its resilient performance. Nonetheless, the stock has suffered a nearly 40% decline in 2024, appearing unduly punished by market sentiment.
At its current valuation, Lululemon trades at a forward one-year price-to-earnings ratio of less than 20, signaling a potential buying opportunity. The brand’s evident growth trajectory amidst challenging circumstances positions it as a compelling investment prospect.
Lululemon’s resilience in adverse market conditions bodes well for future performance under more favorable economic environments. As a frontrunner in its sector, Lululemon appears poised to maintain its leadership and drive sustained growth for years to come, making it an attractive proposition for retail investors seeking stable growth opportunities.
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