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lululemon's Power of Three Strategic Plan to Boost Sales

Zacks Equity Research

lululemon athletica inc. LULU has announced a five-year plan namely Power of Three, which aims at doubling sales in the men’s and digital categories, and quadrupling sales in the international unit by 2023. The company witnessed robust growth in 2018 and also accomplished three of its 2020 goals. Encouraged by this, the stock has surged 81.1% in a year’s time, outperforming the industry’s growth of 19.4%.

This five-year plan focuses on three core objectives, including product innovation, omni-guest experiences and expansion efforts. It also comprises of contributions from the company’s membership program, which is currently in the testing phase.  

Apart from these, management highlighted that it 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.

That said, critics believe that the company needs to look beyond its core categories and limited number of products in order to establish itself as an experiential brand. Keeping in these lines, the company is gearing up to undertake new strategies.

One of lululemon’s key objectives is to improve brand awareness in the men’s category by expanding new and existing products. The company intends to tap into customers’ growing preference for athleisure by launching new product lines related to activities like yoga, running and training. Additionally, expansion of office luggage and travel bags, and continued partnerships are some of the other product-related initiatives.

Going ahead, lululemon intends to venture into the selfcare category that includes products such as deodorants, moisturizers and shampoo. Moreover, the company is likely to enter the footwear market soon, according to sources. All these efforts are likely to attract new customers, who otherwise shop from Nike NKE, Adidas ADDYY and Under Armour UAA. With these efforts, the men’s category may achieve $1 billion in annual sales by 2020.

Further, the company is poised to boost international revenues by executing its plans to expand in China, Asia-Pacific and EMEA, which are key growth regions for the company. Earlier, lululemon’s growth efforts in Asia were anchored by the opening of the first store in Osaka, Japan, and the first airport store in Hong Kong. In Europe, the company’s brand is resonating well with customers. Additionally, the company opened the first store in Amsterdam.

lululemon has already 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 expects to benefit from integrating its chic store formats, digital platforms and community.

With such well-chalked efforts, this Zacks Rank #1 (Strong Buy) company anticipates to deliver sales growth in the low-teens in the next five years. lululemon also revealed annual benefits of this new plan, which include modest gross margin improvement, slight reduction in SG&A costs, operating growth in excess of sales growth, earnings per share growth equal to or more than operating income growth, and capital expenditure to be 6-8% of sales. You can see the complete list of today’s Zacks #1 Rank stocks here.

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lululemon athletica inc. (LULU) : Free Stock Analysis Report
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