Lululemon Athletica is seeing some truly remarkable growth, and its last earnings call covered the company’s performance both in the fourth quarter of its last fiscal year as well as the company’s entire 2020 fiscal year as a whole. So, what exactly is the bull case for Lululemon?
Lululemon Ecommerce Up 92% Since 2019
Throughout Lululemon’s 2020 fiscal year, the company managed to increase its total revenue by 11% compared to the year prior — this translates to 1.7 billion in total for its fourth quarter of 2020, with 52% of this (or $900 million, approximately) coming solely from e-commerce alone.
This number is remarkable on its own, but becomes even more so in the grand scheme of things: Lululemon grew its e-commerce market 92% since 2019, and in 2019 grew its e-commerce 41% since 2018.
Needless to say, Lululemon Athletica’s online presence is more remarkable than it’s ever been, and this has translated directly into some of the most impressive financials the company has ever reported. As a result, its stock recently hit its all-time high.
Analysts Forecasts For Lulu Very Positive
Financial analysts have some very positive forecasts for the remainder of the company’s 2021 fiscal year.
On average, analysts see Lululemon bringing in $1.3 billion at the end of its current quarter and its next quarter, as well.
By year end, analysts see Lululemon (LULU) bringing home $5.9 billion for the 2021 fiscal year. Looking forward, they see Lululemon adding another billion to that number by the end of the following fiscal year, as well.
Judging by these numbers alone, you would really have to jump through quite a few hoops to successfully make a bearish argument in the face of such positive forecasts.
Lululemon’s MIRROR Acquisition Posting High Sales
While Lululemon Athletica (LULU) originated as simply an athletic clothing brand, the company has since evolved in a big way — namely with the acquisition of MIRROR, a revolutionary home gym that combines smart technology with the convenience of a wall mirror.
Cardio, yoga, boxing, and all sorts of other fitness classes can be streamed on the device, offering convenient storage of workout equipment, as well.
Sales of the MIRROR surpassed even Lululemon’s expectations, accounting for $170 million in revenue in 2020 alone. Given the continuing risks of COVID-19 and the hesitance many still have to return to the gym, MIRROR sales should continue to rise.
Lululemon Is Expanding Overseas, Especially China
While much of Lululemon Athletica’s success comes from sales in the United States alone, the athletic wear company has plans to continue its expansion overseas. This includes the United Kingdom, Germany, and China, among several other new markets for the company.
China, in particular, should prove to be especially lucrative for Lululemon — as a matter of fact, the company plans to open its most new stores for the entire year in the country.
The current plan is 15 to 20, with room for more expansion in years to come. Lululemon Athletica has no reason to expect this planned expansion to go poorly, especially since fitness and wellness is truly a global trend right now.
Lululemon’s Market Share Can Rise
Lululemon is a name that even those outside of the fitness and wellness phenomenon can recognize. This is a direct result of the company’s popularity among all types of people, not just those who are fitness fanatics.
Lululemon’s clothing is incredibly comfortable, and this allows for it to branch outside being strictly an athletic apparel company — It’s just as nice to sit around in the company’s clothes, and consumers know this.
Still, Lululemon’s market share is pretty modest: 3.63%. Considering how crowded this market is, the number isn’t too bad. Indeed it means the opportunity to grow remains enormous. It also puts the company above the likes of Under Armour, Columbia, and Delta Apparel.
Traffic and Productivity at Lululemon Storefronts
Despite more than half of Lululemon Athletica’s 2020 sales taking place online, the company is still committed to increasing traffic and productivity in Lululemon storefronts across the country and abroad.
By the close of the year, 88% of Lululemon stores were back open and productivity at 71% of the previous year’s volume, both of which were in line with the company’s expectations.
Since then, nearly 100% of Lululemon stores have returned to operation and only expect to improve store productivity as the second half of 2021 continues. This shows great promise: Lululemon could certainly do just fine with e-commerce sales alone, but the company is determined to make the customer experience in Lululemon storefronts just as impressive as the experience on Lululemon’s website.
The Impact of COVID-19 on Lululemon
COVID-19 variants bring uncertainty to the in-person shopping experience just as the coronavirus did initially in the early months of 2020.
Knowing how well Lululemon Athletica performed in 2020 despite COVID-19, bullish investors can be forgiven for not fearing what might happen to the company during the rise of variants.
The company has shown its flexibility to succeed in spite of store closures due the strength of its ecommerce stores.
The Bottom Line: What Is the Bull Case for Lululemon?
Sometimes, it takes an expertly constructed argument to convince an investor of the bull case for a company. However, this just isn’t the case with Lululemon Athletica. The numbers are just too good.
From the company’s financials and forecasts to the success of the MIRROR and the company’s global expansion, Lululemon Athletica has only grown its market share, its traffic, and its productivity despite the ongoing threat of COVID-19, supply chain disruptions, and in-person shopping restrictions. It’s the sign of an enduring and successful company, and it makes the bull case for Lululemon strong.
From a quantitative perspective analyzing cash flows, projecting them into the future and discounting back in time, we arrive at a fair market value or intrinsic value for Lulu of $393 per share, suggesting prices above that are overvalued.
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