A luxury apparel brand has recorded more than a 90% jump in its stock in 2019, but can it catch up to its competitors?
Lululemon (NASDAQ: LULU) is an apparel business for yoga, running, and training that was born in Vancouver, Canada in 1998. In recent times, its stock has been a huge winner in the retail sector and has posted a number of strong earnings and sales growth and is tipped to be the next Nike (NYSE: NKE). The stock jumped 91% in 2019 and is already up by 4% year-on-year in 2020.
The Rise of Lululemon
The company was founded by Chip Wilson after he fell in love with yoga and saw an opportunity to create more technical and performance-based clothing. He sold almost half of the company to private equity firms in 2005 and then two years later the company went public. By 2015, Lululemon was making $1.79 billion in revenue.
Lululemon prides itself on delivering high-quality clothing and rarely offers discounts on its products over 20-30%. In addition, the company is very community orientated and offers free classes including yoga, running groups, and meditation. It sets itself apart from other big sportswear brands by advocating for people to live their best life by setting goals and achieving them and has proved to be an economic leader in culture and self-care.
Is Lululemon The Next Nike?
After crunching the numbers, research firm Cowen revealed that Lululemon is on track to hit a $40 billion market cap, a $300 stock price and $1 billion in free cash flow. The company’s current market cap is $29 billion, compared to Nike’s $146 billion, so it still has a fair bit of training to do before it catches up.
Compared to Lululemon’s huge increase in stock prices, Nike and Under Armour (NYSE: UAA) posted increases of 25% and 3%, respectively. In a note to clients, Cowen analyst John Kernan said “We have confidence that new product, integrated marketing, and online momentum combined with loyalty, a healthy high-end customer demographic, and athleisure fashion trends will yield traffic, improving conversion, and comps.”
Is Lululemon a Good Investment?
The company is expecting to report revenue of up to $3.91 billion for the whole of 2019. Analysts are also positive about the future growth of Lululemon’s stock, the consensus estimate being that the retailer’s earnings per share will increase at a compounded annual rate of 21% over the next five years.
The sportswear brand is also building up its e-commerce business, with revenue in its third-quarter earnings reaching $246.7 million for its online purchases or 26.9% of its total revenue. This is an area that is expected to rise over the coming years, growing at a faster rate than its in-store sales.
The deadly coronavirus outbreak has now spread to Lululemon, with the company announcing it has temporarily closed 38 stores in China. The outbreak of the virus has caused havoc for a number of retailers operating in the region. Lululemon is expected to report its fourth-quarter earnings in late March, and the outbreak is likely to have an impact on its sales for the quarter.
What Does Lululemon’s Future Hold?
Lululemon launched focusing mainly on women’s activewear in the yoga space. Now the retailer has a big push on men’s apparel and plans to more than double sales from menswear by 2023. While the men’s clothing is a strong growth focus for Lululemon, its competitors like Nike and Under Armour are doing the opposite. The competition plans to target its female shoppers with new yoga pants and sports bras – possibly in a bid to keep up with Lululemon.
In addition, the company said it expects to double its digital revenue and quadruple international sales. Lululemon is also branching out and creating personal care products like deodorant. It is also testing a new loyalty program, where customers pay a yearly fee and get access to quick shipping and workout classes.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold no positions in Lululemon and Nike. Read our full disclosure policy here.