Lululemon Stock is On Sale For the First Time in Years

Stock (Symbol)

Lululemon Athletica (LULU)

Stock Price


Retail and Travel
Data is as of
January 24, 2022
Expected to Report
March 28
Company Description
lululemon athletica inc. is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. The Company’s yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a range of performance apparel and accessories for women, men and female youth. Its apparel assortment, including items, such as fitness pants, shorts, tops and jackets, is designed for healthy lifestyle activities such as yoga, running and general fitness. Source: Thomson Financial
Sharek’s Take
Shares of Lululemon (LULU) are “on sale” for the first time in years, as the P/E ratio of 34 is the lowest I’ve seen since my 2018 Q4 report. Last qtr, LULU’s P/E was 62 (based on 2021 profit estimates) and now the P/E is 34 (based on 2022 est). The drop was caused by profit estimates going from $7.50 to $9.14 (2021 -> 2022) and the stock falling from $465 to $313 (-33%). Meanwhile, in last qtr’s earnings call, management says demand for the brand is outpacing supply, and business could be even stronger without supply chain challenges. The momentum was largely driven by Lululemon’s men’s business, which grew 44% year over year. Mens now accounts for about 24% of total sales, that is up from 21% in the year-ago period. The company has expressed plans to double down on the Men’s division by 2023.

Lululemon’s been one of the stock market’s best stocks the past few years, as the company has achieved exceptional growth via ecommerce as COVID-19 closed a lot of company stores. Lululemon is a Canadian designer, distributor, and retailer of high-quality athletic appeal and accessories, marketed under the lululemon brand. Apparel items include pants, shorts, tops and jackets designed for yoga, running, and training. In 2020, COVID-19 caused direct-to-consumer sales to surge to 52% of company sales, up from to 29% in 2019. In July 2020, the company acquired MIRROR, a home fitness company that allows users to work out in front of a digital mirror. But with sales of 3% of company revenue, MIRROR isn’t a catalyst. Last qtr, LULU cut the MIRROR revenue guideline in half. Next up, the company is set to launch its footwear line in early 2022, and this could be a catalyst that keeps the stock moving higher. The sneaker line is old news, as management stated it was planning on this back in 2019. But this year the company has increased hiring in its Portland operations, and is now scheduled to launch its footwear line in early 2022. Other potential catalysts include the new AirSupport Bra, which was developed with 5 years of advanced research, and Instill, the latest yoga gear that includes high-rise tights. Here are some Lululemon stats from last quarter:

  • Profits were up 40% on 30% revenue growth.
  • Same-store sales increased 32%.
  • E-commerce sales increased 23% and accounted for 40% of company sales.
  • North America and International sales increased 28% and 40%, respectively.
  • Opened 18 new company-operated stores, with a total of 552 stores, globally.
  • Around 96% of stores were open globally, during last qtr.
  • Traffic jumped 50% versus a year ago.

LULU stock has been one of the best during the past decade, and analysts expect the growth to continue. Analysts give the stock an Estimated Long Term Growth Rate of 28% per year, one of the highest growth rates in the retail sector. The stock currently has a P/E of 34, which is the lowest I’ve seen in three years (see here). The company’s financial position and balance sheet are strong with $1 billion in cash, and management even buys back stock, which is rare for a growth stock. Last qtr, management repurchased $236 million in stock. LULU is part of the Growth Portfolio. 2025 profit estimates are for the company to earn $15 per share in profits. A 42 P/E would be a $630 stock, around double the current price.

One Year Chart
When LULU reported last qr’s earnings, the company beat the street, upped profit estimates, and the stock broke out to a new All-Time high. So everything looks good.

Qtrly profit growth (bottom) has been erratic the past 4 qtrs as the company has worked through COVID conditions for almost the past two years.

The Estimated LTG declined from 32% to 28% this quarter. I think LULU is a 30-35% grower.

Note, qtrly profit growth has been erratic due to COVID-19 store closures.

Earnings Table
Last qtr, Lululemon posted 40% profit growth and beat estimates of 21% growth. Revenue increased 30%. Store channel sales grew 38% while e-commerce business increased 21%. International business was stronger than other regions led by China and United Kingdom. MIRROR business accounted for 3% of company sales.

Sales performance was enhanced by Thanksgiving Day to Cyber Monday holiday weekend, strong digital and brick-and-mortar business, re-opening of all factories in Vietnam, strength in women’s, men’s, and accessories categories, strong customer demand in the international business, and new store openings.

Annual Profit Estimates continue to climb higher. Here’s some far-reaching estimates for the upcoming years:
2021 $7.70
2022 $9.14
2023 $10.67
2024 $11.84
2025 $15.03

Quarterly Profit Estimates are for 27%, 12%, 14%, and 18% profit growth in the next four qtrs.

Fair Value
With a P/E of 34 when looking at 2022 profit estimates, this stock is on sale for the first time in three years. Prior to COVID-19, the stock had a P/E of 42, and my Fair Value is now a P/E of 42. I’m decreasing my Fair Value P/E from 70 to 42 this qtr. This is due to many factors.

  1. LULU’s qtrly profit growth decelerated from 139% to 40%.
  2. Qtrly profit growth estimates declined.
  3. The stock market has adjusted, and high P/E stocks have gone out of favor. Now we must accept lower multiples (P/Es).
  4. 2022 profit estimates increased 8% last qtr, but just 1% this qtr.

Note, these projections do not include future stock buybacks.

Bottom Line
Lululemon (LULU) first gained notoriety when Oprah named its Relaxed Fit Pants as one of her Favorite Things in November 2010. That month the shares jumped from $22 to $27 and sent the stock on a run that went briefly past $80 in May 2012. After that, the stock based, and then declined in 2013-2014 after the company was forced to recall its black yoga pants because they were see-through in the crotch area. Profits then declined in 2014-2015. Profits returned to record highs in 2016-2017, and the stock finally broke past $80 in March 2018 — then doubled to $160 in just 6 months.

Lululemon stock is well off its highs, but momentum continues to be strong. With a P/E of 34, the stock is on sale for the first time in years.

LULU moves up from 16th to 10th in the Growth Portfolio Power Rankings.

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