lululemon athletica inc. LULU appears to be a solid bet driven by continued investments to aid business growth. The company is benefiting from continued product innovation, enhancement of omni-channel experience and sturdy international growth. Additionally, it is progressing well on the Power of Three strategic plan, which aims at doubling sales in the men’s and digital categories, and quadrupling sales in the international unit by 2023.
Backed by these tailwinds, shares of the company have surged approximately 56% year to date, comfortably outperforming the industry’s 26.1% rally. This Zacks Rank #2 (Buy) stock has also outperformed the Consumer Discretionary sector and the S&P 500 Index that advanced 25.2% and 18.7%, respectively. Further, the stock is hovering close to its 52-week high of $191.44. With a long-term earnings growth rate of 18.4%, lululemon is positioned to attain new highs.
Factors Narrating lululemon’s Growth Potential
After witnessing robust growth in fiscal 2018 and accomplishing three of its 2020 goals, lululemon has announced a five-year plan namely Power of Three. This plan focuses on three core objectives— product innovation, omni-guest experiences and expansion efforts. It also comprises of improving contributions from the company’s membership program, which is currently in the testing phase.
In addition to its goals of improving performance of the men’s category under the plan, management will continue to concentrate on women’s and accessories businesses in North America that have been performing well for a while now. The women’s business and stores in North America are likely to deliver sales growth of low double-digits annually in the next five years. Further, the company expects about 20% sales growth for the men’s business every year. It anticipates delivering total sales to increase in the low-teens in the next five years.
Apart from launching new assortments in the core men’s and women’s categories, its product innovation plan focuses on testing new categories. The company has identified several new areas which it can test to bring innovation to guests. One category is selfcare, which includes products such as deodorants, moisturizers and shampoo. It launched the Selfcare line of personal care products for men and women on June 18, 2019.
Designed to meet athletes' requirements, this product line is available at lululemon’s online site, across 50 lululemon stores, at select studio partners in North America, and on Sephora.com. This product launch highlights a partnership between the two companies, which strengthens the customer base of lululemon.
Additionally, the company intends to tap into customers’ growing preference for athleisure by launching new product lines related to activities like yoga, running and training. Expansion of office luggage and travel bags, and continued partnerships are some of the other product-related initiatives.
Another key element of lululemon’s five-year plan is enhancing omni-channel guests’ experiences. The company is looking for new and exciting ways to connect with customers, as clear from the testing of its loyalty program. Further, it has expanded its online only size and color offerings for both men and women, which is a testament to its efforts to attract digital guests.
Notably, lululemon has built a strong customer base in the United States and Canada and expects more growth potential in these regions in the next five years. The company is poised to boost international revenues by executing its plans to expand in China, Asia-Pacific and EMEA, which are the key growth regions.
In fiscal 2019, the company plans to further boost international presence by the opening of nearly 25-30 stores. Of this, opening of about 10-15 stores are planned for China and 5-10 stores for Europe.
We expect all aforementioned factors to continue bolstering the company’s performance, and help it remain in investors’ good books.
Other Top-Ranked Stocks From the Same Industry
Guess', Inc. GES has an expected long-term earnings growth rate of 17.5%. Moreover, it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Under Armour, Inc. UAA, also a Zacks Rank #1 stock has an expected long-term earnings growth rate of 27.1%.
Crocs, Inc. CROX carries a Zacks Rank #2 at present and has expected long-term earnings growth rate of 15%.
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