lululemon (LULU) Looks Good on Digital Initiatives, Growth Plan
lululemon athletica inc. LULU is well-poised to tap the positive trends in the fashion world, thanks to its e-commerce initiatives and long-term growth plan. LULU has been capitalizing on the importance of physical retail and the convenience of online engagement, which are expected to boost its performance. It is also on track with the Power of Three X2 growth plan.
The company’s top and bottom lines have been witnessing positive trends driven by robust traffic in stores and e-commerce. Continued business momentum and innovative products have been key drivers. Additionally, lululemon has been witnessing improved margin trends, driven by overall improvement in product margin, mainly stemming from lower freight expense.
Gains from these positive trends have been well-reflected in its share price. Shares of this Zacks Rank #3 (Hold) company have rallied 48% in the past year, outpacing the industry’s growth of 20.2%. The stock also fared better than the Consumer Discretionary sector and S&P 500’s growth of 9.8% and 24.9%, respectively, in the same period.
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E-commerce Actions
lululemon expects to capture the growing online demand and ensure a robust shopping experience through its accelerated e-commerce investments. It has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. The company continues to strengthen omnichannel capabilities such as curbside pickups, same-day deliveries and BOPUS (buy online pick up in-store). It is enhancing its mobile app in a bid to offer a curbside pickup facility and train its store associates to help customers speed up transactions.
In the third quarter of fiscal 2023, direct-to-consumer net revenues rose 18% (up 19% on a constant-dollar basis). In the digital channel, revenues accounted for 41% of the company’s net revenues. E-commerce traffic also improved 20% in the fiscal third quarter.
Power of Three X2 Growth Strategy
lululemon continues to benefit from progress on its Power of Three X2 growth strategy. As part of the Power of Three X2 growth plan, LULU estimates net revenues of $12.5 billion by 2026, implying significant growth from the 2021 reported figure of $6.25 billion. The plan focuses on three key growth drivers, including product innovation, guest experience and market expansion.
The five-year plan is likely to quadruple international sales, along with doubling digital and menswear sales. Also, the women’s business and North American operations are each anticipated to witness a low-double-digit CAGR in revenues, with store channel growth in the mid-teens in the next five years. As part of its strategy, the company intends to expand in China as well as European markets, with plans to open stores in Spain and Italy.
For 2021-2026, the total net revenue CAGR is expected to be 15%, with a slight expansion in the operating margin on an annual basis. lululemon anticipates bottom-line growth to outpace revenue growth. Although the 2026 targets seem too bold, it believes that these are achievable due to its strong financial position.
Solid Holiday Sales
lululemon reported a notable increase in net revenues and earnings per share during the holiday season, underlining its resilience and ability to adapt to evolving consumer preferences. LULU witnessed balanced sales trends across channels, categories and geographies during the holiday selling period, which enabled it to raise its view for the fiscal fourth quarter. Sales mainly gained from its focus on fresher styles. Management noted that guests continued to respond positively to lululemon's innovative and versatile product offerings.
Upbeat View
Following the strong holiday season performance, lululemon expects net revenues of $3.170-$3.190 billion for fourth-quarter fiscal 2023, indicating a 14-15% increase from a year ago. The revenue guidance reflects the company’s strong market performance. Earnings per share are expected to be between $4.96 and $5.00 for the fiscal fourth quarter, reflecting strong sales as well as the company’s effective cost management and operational efficiency.
The gross margin for the fiscal fourth quarter is expected to be 58.6-58.7%, suggesting that lululemon is successfully navigating market dynamics and optimizing its cost structures to achieve improved profitability.
Stocks to Consider
Some better-ranked companies in the Consumer Discretionary sector are Ralph Lauren RL, Guess GES and PVH Corporation PVH.
Ralph Lauren, a premium lifestyle products company, currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 18.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales and earnings suggests growth of 2.7% and 22.7%, respectively, from the prior-year reported levels. The consensus mark for RL’s earnings per share has moved up 1.2% in the past seven days.
Guess, which designs, markets, distributes and licenses casual apparel and accessories for men, women and children, currently carries a Zacks Rank #2 (Buy). GES has a trailing four-quarter earnings surprise of 43.1%, on average.
The Zacks Consensus Estimate for Guess’ current financial-year sales suggests growth of 2% from the year-ago reported number. The consensus mark for GES’ earnings per share has moved up by a penny in the past 30 days. However, the consensus mark for the current financial-year’s earnings suggests a year-over-year decline of 1.1%.
PVH Corp specializes in designing and marketing branded dress shirts, neckwear, sportswear, jeanswear, intimate apparel, swim products, footwear, handbags and related products. It currently carries a Zacks Rank #2. PVH has a trailing four-quarter earnings surprise of 18.9%, on average.
The Zacks Consensus Estimate for PVH’s current financial-year sales and earnings suggests growth of 1.2% and 16.6%, respectively, from the year-ago period’s actuals. The consensus mark for PVH’s earnings per share has been unchanged in the past 30 days.
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Ralph Lauren Corporation (RL) : Free Stock Analysis Report
Guess?, Inc. (GES) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
PVH Corp. (PVH) : Free Stock Analysis Report
