Lululemon Athletica Inc. (NASDAQ: LULU) will report the fourth-quarter earnings report tomorrow on Tuesday, March 30, 2021, after trading hours. The industry leader in athleisure brand posted strong earnings throughout the pandemic as more people preferred casual apparel than formal attire while working from home. Many people also stayed active and use Lululemon’s product to attend online yoga classes and use at-home fitness equipment like Peloton during the lockdown.
Despite a sharp decline in March 2020 responding to the global COVID-19 outbreak, the stock price has outperformed the S&P 500 index by 268% and Nasdaq by 175% based on five years performance. The stock is trading at $316 per share with a 52-week range of $177 to $399 per share. The consensus price target is $402 per share based on current earnings expectations, implying a potential upside of nearly 30%.
Earnings Per Share
The stock price was in correction territory after solid gains towards the end of the year 2020 partly because the investors decided that the pandemic winners like Lululemon would not continue posting big numbers. However, it is a compelling entry point at current pricing with strong online sales while other retailers struggled during the pandemic. The market expects Lululemon to deliver revenue of $1.66 billion and $2.49 earnings per share, a gain of 19% and 9% year-over-year, respectively. On the same note, the full-year expectation is $4.3 billion in revenue, an 8.9% increase from last year.
The chart from Nasdaq above provides the historical estimated earnings per share vs. actual. Lululemon beat the earnings expectation by up to 33% during the height of the pandemic. The company reported a 157% surge in online sales in Q3 2020 while the economy was on lockdown. The expansion into international market and men market segment also contributed to strong sales.
Lululemon is the only activewear brand that shows a solid and sustainable revenue growth year-over-year. The leading competitor brand, such as Nike, Under Armour, and GAP, showed a declining trend between 2016 -2019.
Lululemon’s revenue grew 18% annually on average, while Nike, Under Armour, and Gap only grew 4%, 8%, and 1%, respectively. The company has successfully penetrated the fitness and activewear market segments and eroded Nike and Under Armour’s domination. The leading yoga apparel brand has many devoted followers, which makes it the Apple of activewear products. There is always a long line-up in every Lululemon store despite the expensive price point on its product lines.
Lululemon is remarkably successful in transforming fitness apparel and yoga pants into day-to-day activewear through successful marketing campaigns and strong customer acquisition. Lululemon’s products become the mainstream apparel replacing traditional jeans and t-shirts for all ages.
Lululemon is the most profitable company in the activewear market segment ahead of Nike and Under Armour. The profit grew 28% yearly while Nike and Under Armour only grew 5.75%, -1.52%, respectively. Lululemon has strong profitability growth, which allows the company to finance its expansion organically without any debt in the last four fiscal years.
|Operating Margin Growth||2016||2017||2018||2019||Average|
|Under Armour (UAA)||17.90%||-62.71%||59.29%||-20.56%||-1.52%|