Lululemon (LULU) Delivers Sensational Results as More Inventory Helped

Stock (Symbol)

Lululemon Athletica (LULU)

Stock Price


Retail and Travel
Data is as of
April 19, 2023
Expected to Report
May 31
Company Description
lululemon athletica inc. is a designer, distributor and retailer of lifestyle inspired athletic apparel and accessories.

The Company’s segments include Company-operated stores and direct to consumer.

Its apparel assortment includes items such as pants, shorts, tops, and jackets designed for a healthy lifestyle, including athletic activities such as yoga, running, training, and other sweaty pursuits.

It also offers fitness-related accessories. Its Company-operated stores include approximately 600 stores in 17 countries.

Its retail stores are located primarily on street locations, in lifestyle centers, and in malls.

Its direct to consumer segment includes www.lululemon.com, other country and region-specific websites, and mobile applications, including mobile applications on in-store devices.

The Company also conduct business through MIRROR, which offers in-home fitness through a workout platform; operate outlets and temporary locations. Source: Refinitiv

Sharek’s Take
In my last Lululemon (LULU) research report, I was worried the company would have to mark down items due to inventory levels being up 85% in a year. But it turns out this helped boost sales, which jumped a solid 30% last quarter. Profit margins did decrease a bit, which management had worked us about, but profit growth was still 31% last quarter. Direct to consumer sales jumped a whopping 37% and accounted for more than half (52%) company sales. Stats from last qtr include:

  • Profits were up 31%, year-over-year.
  • Revenue growth of 30%.
  • Same-store sales increased 15%.
  • E-commerce sales increased 37%, and accounted for 52% of company revenue.
  • Sales in North America grew 24% and International 39%.
  • Opened 32 new company-operated stores, with a total of 655 stores, globally.
  • Store traffic was up 30% while e-commerce traffic grew around 45%.

Lululemon is a Canadian designer, distributor, and retailer of high-quality athletic appeal and accessories, marketed under the Lululemon brand. The brand is known for its technically advanced fabrics, with a superior feel and fit. Apparel items include pants, shorts, tops and jackets designed for yoga, running, and training. During 2022 the company opened 81 new stores to bring its total to 655 stores worldwide. Plans are for 45-50 new stores in 2023, including 30+ in China and international markets. Mini-catalysts for future growth opportunity include:

  • SenseKnit: a new running collection that provides lightweight compression zones, while also being breathable with ventilation holes throughout.
  • Hike: this collection was launched last qtr, and includes water-resistant fabrics for outdoor weather conditions. Some pieces ave removable sleeves and pant legs if you get too hot.
  • Blissfeel: a technical running shoe for women which launched in March and received Best Women’s Shoe for 2022 by Runners World. LULU has since added a hybrid training shoe for women in Chargefeel, and slip on sandles called Restfeel, which comes in mens and women styles.
  • Strongfeel: another technical running footwear designed for women.
  • lululemon Studio (formerly MIRROR): This new digital fitness content through mobile app offers two tiers–the Essential program, which is free, and Studio premium, a paid service membership. MIRROR hasn’t been doing well, and the company is trying to sell it.

Management is optimistic about growth opportunities of Lululemon and laid out new growth plans called “Power of Three x2.” This calls for doubling revenue in five years from $6.25 billion in 2021 to $12.5 billion in 2026. Plans are for International revenue to quadruple from 2021 to 2026. 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 17% per year. The stock currently has a P/E of 32. The company’s financial position and balance sheet are strong with $1.2 billion in cash and equivalents, and management even buys back stock, which is rare for a growth stock. In 2022, management repurchased $444 million in stock. LULU is part of the Growth Portfolio and Aggressive Growth Portfolio. I think its a 30% grower long-term.

One Year Chart
This stock is about to touch a 52-week high. This could be one of the new market leaders of a fresh Bull Market.

This stock had a P/E of 62 when it was $465 in November 2021. That was too high, and the stock has since digested some of the prior gains. Now with a P/E of 32, the stock has gone from overvalued to undervalued.

Quarterly profit growth has been solid the past year. But revenue growth is expected to slow from 30% to 19% next quarter, and this could lead to profit growth simmering down somewhat.

The Est. LTG is 17% this qtr, down from 22% last qtr. I think LULU is a 30% grower.

Earnings Table
Last qtr, Lululemon posted 31% profit growth and beat expectations of 27% growth. Revenue increased 30%, year-over-year. Gross margin declined to 55.1% from last year’s 58.1% due to FX impacts and logistics costs. Take note that profits last qtr included $3.46 per share of impairment charges related to MIRROR business. Here are the product category results during the period (3-year CAGR basis):

  • Men’s: sales +26%
  • Women’s: sales +23%
  • Accessories: sales +44%

Revenue growth was driven by strong demand for their products in North America and international markets. Growth was led by strength in transactions from new (+30%) and existing customers (+35%) and the normalization of their buying behavior towards full price and markdown products. Ecommerce sales were outstanding. China revenue increased more than 30%. The at-home fitness space remains challenged.

Annual Profit Estimates grew this qtr. Here’s some far-reaching estimates for the upcoming years:
2023 $11.61
2024 $13.44
2025 $15.75
2026 $17.76

Quarterly Profit Estimates are for 33%, 14%, 12%, and 12% profit growth in the next four qtrs. For next qtr, management expects revenue to grow 18%, analysts think that LULU revenue will grow 19%. Profit growth could be well above revenue growth due to lower air freight costs.

Fair Value
My Fair Value is a P/E of 40. The stock seems undervalued, with HUGE upside when we look to 2024’s Fair Value of $538 a share.

Lululemon has a fiscal year end of January 31. We refer to the fiscal yer end January 31, 2023 as “2022” as 11 months are in calendar year 2022.

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 delivered a sensational quarter. Momentum is high. More online sales, rapid International expansion and new products like SenseKnit, Hike, and the sneaker lineup should keep growth humming along.

LULU moves up from 6th to 5th in the Growth Portfolio Power Rankings. The stock will stay at 6th in the Aggressive Growth Portfolio Power Rankings too.

Power Rankings
Growth Stock Portfolio

5 of 27

Aggressive Growth Portfolio

6 of 19

Conservative Stock Portfolio


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