Lululemon: Great Business But Can The Stock Keep Up?

  • LULU Beats Again
  • Online sales have exploded
  • Post Pandemic Shopping
  • Expansion into Mens wear
  • Athletic leisure trend to Europe and Asia
  • China is Untapped Market
  • Stock Expensive But a Buy on Dips

Lululemon (NASDAQ:LULU) once again beat earrings maintaining its perfect record of exceeding market expectations for the past two years. The news however, was not good enough for the stock which traded down about 1% in after market session.

Online sales have exploded

The company announced that sales rose 21% with online sales exploding to 50% of total from 33% just a year ago. Helped by the shift in consumer shopping preferences over the pandemic LULU has managed to accelerate its online channel which should prove to be a lucrative source of repeat business going forward The re-opening of the economy should also benefit the brand with return of brick and mortar shoppers flush with stimulus checks and eager to try the companies new offerings.

Expansion into Menswear

LULU has succeeded with its revamped merchandising strategy towards women, but it noted that it is not standing still and will try to aggressively expand its menswear line with shorts and abrasion resistant fabrics. If the Company can provide comfortable yet attractive wear for the Work from Home male demographic it will be able develop a completely new market for itself that could keep it growing in double digits for years to come.

Athletic Leisure trend to Europe and Asia

However, the company’s true growth lies outside of North America if it can convince consumers in Europe and Asia that athletic leisure wear can be worn on an everyday basis. To that end the Company will be able to capitalize on the bigger global trends of informality and casualness that have become the dominant American cultural values. LULU’s prospects are especially bright in China where a centuries long emphasis on well being dovetails perfectly with the brand. With Chinese consumers continuing to increase their disposable income, LULU has a chance to position itself for multi-year growth in the region.

Stock Expensive But a Buy on Dips

At 67 times trailing earnings LULU stock remains expensive and may continue to consolidate and even drift below the $300 per share mark despite the bright prospects. Still, the company remains a pre-eminent brand in its space and any dip should be seen as potential to establish a position and the company has a good chance to double both revenues and earnings over the next few years as its forays into online, menswear and Asia markets should continue to pay off. Investors looking to establish a beachhead in the stock could try selling $300 strike puts or lower to establish a better basis in the position.

Original Article

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