Lululemon - Canadian-American premium athletic wear

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Lululemon Athletica Inc., a Canadian-American athletic apparel manufacturer, was founded in Vancouver in 1998. Initially, the company focused on yoga wear but later expanded its product range to include athletic wear, lifestyle apparel, accessories, and personal care products.

In 2007, the company went public, and its revenue has grown significantly, with the “main reason” being the launch of men’s clothing and shoes in particular. Lululemon is known for its innovative fabrics, such as Luon and Nulu, which offer compression and moisture-wicking properties. The company has also invested in MIRROR, an interactive home fitness device, which it acquired in 2020.

Lululemon is known for its brand, which attracts customers to feel part of some kind of community, and the company has also sponsored many top athletes. The company’s marketing focuses particularly on social media and collaborations with social media influencers. Lululemon has also been involved in sponsoring the Canadian Olympic team for the Paris 2024 games.

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For the Investor

The company’s brand is strong, and it has gained a loyal customer base in the premium segment, which is likely due to a certain sense of community that the company has managed to create. Lululemon has been excellent at expanding its product portfolio and sales channels, especially through digital services and investments in sustainable development. As an investment target, Lululemon offers growth potential according to many, as it has expanded internationally and the company continuously develops its product innovation.

The balance sheet is relatively strong, and the company has demonstrated the ability to grow its sales and profitability, even though competition in the sportswear industry is generally tough.

Lululemon’s future prospects are promising for some, as the company has found its own niche where it has been able to price itself appropriately. The brand has its own good reputation, which attracts consumers, and consumers who appreciate the company’s products are fond of the quality and durability offered by Lululemon. The company has been able to adapt to changing market trends, such as sustainable materials and… still more repetition (apologies!), but once more for good measure; one significant factor is also Lululemon’s investment in technology and digital services, which improve the customer experience and increase customer loyalty - in addition to community. With these investments, the company can differentiate itself from its competitors and also attract new customers globally.

Competition is genuinely fierce, consumer purchasing power is decisive, as is how the company manages to keep up with innovations and trends. I mentioned quality as one strength, but on the other hand, there have also been quality problems, and the company has also faced regulatory issues and legal disputes. The company has also heavily invested its capital, and if these investments do not yield results, it will strongly reflect in the share price. The company’s resources are far from those of Adidas, Under Armour, and similar companies, which in part adds excitement to the competition. One should not forget the general industry problems related to supply chains or raw material prices.

Reading, Quarterly Reports, and Such

Q3/2024

Lululemon’s third-quarter results exceeded expectations, although “expectations” related to new products were not fully met. Revenue growth continues to be strong, and the company raised its forecasts for improved gross margin.

The company is investing in marketing, international growth, and technology, which should support its long-term plan. The share of new products in sales has increased, so investments in them have been successful.

China is seen as an important growth market, although operational profitability is not high, and the company continues to repurchase its own shares.

https://x.com/StockMarketNerd/status/1864782163029152031
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2023

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In this tweet, the valuation multiples and similar are perhaps better and more clearly presented than in my initial post. :slight_smile:

https://x.com/TheRayMyers/status/1868370582917542235
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Lululemon expects fourth-quarter sales to exceed expectations, suggesting it is performing well against competitors and slowing consumer demand.

The company raised both its revenue and earnings per share forecasts. Strategically, Lululemon is focusing on expanding its product range, international growth, and men’s products, aiming for $12.5 billion in annual revenue by 2026.

The story should not be behind a paywall.

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Here’s a bit more material on what’s expected from Lululemon for the fourth quarter. :slight_smile:

https://x.com/cfromhertz/status/1878782350718607708
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Diamond Hill Large Cap Fund commented on Lululemon, stating that this leading technical apparel brand faces challenges in the United States due to tightening competition and slowing sales.

They also mention how investors suspect structural problems, but Diamond Hill believes the challenges are temporary and Lululemon will maintain its margins. The investment fund saw the company’s quality and strong balance sheet as an attractive buying opportunity given the initial dip.

https://x.com/StockCompil/status/1897777006747451399

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Lululemon’s revenue grew strongly and earnings exceeded expectations.

Sales increased in both American and international markets, and gross margin also improved. CEO Calvin McDonald emphasized the company’s innovations and strong brand, while CFO Meghan Frank highlighted future growth opportunities and long-term value creation despite various economic uncertainties.

https://x.com/StockMarketNerd/status/1905353748714566092
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EDIT:

From this, you can see the figures well and compare them:

https://x.com/wallstengine/status/1905351922418418052
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Here’s another tweet regarding the growth in the company’s store count.

https://x.com/finchat_io/status/1905366727678198044
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Here you can see the company’s progress somewhat by category

https://x.com/finchat_io/status/1905361947228602637

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Below is Blumma’s story about Lululemon. The story describes how inflation concerns and economic uncertainty have reduced consumer willingness to buy, and competitors like Alo Yoga and Vuori have taken market share.

Analysts are pondering whether the slowdown is due to brand maturation or a challenging market situation.

Lululemon’s forward price-to-earnings ratio for the next 12 months — a benchmark for valuing stocks — was 21.92, compared with 31.51 for Nike and 25.67 for Adidas.

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In this tweet, Lulu and Nike are lightly compared :slight_smile:

https://x.com/carbonfinancex/status/1906344834966663486
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According to the tweet below, Lululemon could be in trouble if retaliatory tariffs come into effect. 40 percent of the company’s products are manufactured in Vietnam, which exposes it to significant tariff risk as Trump’s trade war continues.

https://x.com/WallStJesus/status/1907513769774710859

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CEO’s comments on Lululemon and its share repurchases:

https://x.com/finchat_io/status/1910052611497357688

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The tweet below describes how Lululemon is growing rapidly and taking market share from Nike.

Lulu has successfully combined performance/practicality and style, making sportswear everyday wear. Direct-to-consumer sales and an expanding men’s collection have supported global growth.

https://x.com/MMoney642/status/1926306420284104957
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Here’s a good comparison between Lulu and Nike regarding revenue development. :slight_smile:

https://x.com/IshfaaqPeerally/status/1926525371047886939

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The company grew its revenue by 7 percent in the first quarter and EPS improved slightly from the previous year, in addition, gross profit grew by 8 percent, while also improving the margin.

The company’s management emphasized strong demand in various markets, especially in the United States, as well as success in product and brand refreshes.

The company continues to invest to support growth; these investments are feasible because its financial affairs are in good order.

https://x.com/ConsensusGurus/status/1930719505388318959
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Company’s own materials

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In my opinion, this didn’t quite happen this way. Growth practically occurred elsewhere than in the Americas. But America still accounts for over 70% of revenue. If there’s anything positive, internationalization continues to progress well.

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The CEO said the following in the earnings call:

But my sense is that in the U.S., consumers remain cautious right now, and they are being very intentional about their buying decisions. Even with this, we gained market share across both men’s and women’s in the premium athletic wear market in the United States.

Lulu indeed took a significant hit in the after-market (a whopping -23%), because the Q2 guidance for earnings did not meet expectations, even though the full-year guidance was kept the same. The reason is a “dynamic market environment,” i.e., tariffs.

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Yes, you are absolutely right. As soon as I read your message, I believed I was wrong, but I had to re-read it, and nowhere in what I read about that result was it wrong. Thanks for the correction! :slight_smile: My mistake entirely.

Sometimes I was observing a certain target (it’s been a while), I read a certain press release and saw that the stock price hadn’t reacted to such a great release yet; I bought it, but after some sluggishness, it started to decline. I had read the text without translating it with anything and had read/interpreted the matter incorrectly, which even in Finnish was correctly worded. On the other hand, in this case, regarding these figures, by looking at tables or visualizations, it wouldn’t have gone wrong.

It doesn’t get mixed up for me so often anymore, but sometimes I think it’s about forecasts when those “fiscal periods” or something are peculiar. :slight_smile: Even in Finnish, it sometimes goes wrong when I table results for friends and myself, it goes wrong, even more so in English - never has the error been anywhere but in myself.

And thanks for the other additions too! :pray:

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According to the tweet below, Lululemon is now at its cheapest in over a decade. A stable earnings growth forecast (8%+) would attract the tweeter, but the nature of the industry is concerning.

https://x.com/DividendDude_X/status/1936061653293904249

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Nike and Lululemon in a small comparison, plus Lululemon should still have quite a bit of growth potential… :thinking:

https://x.com/fiscal_ai/status/1938628466817302647
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Having walked through the summer in Lululemon shorts and liked them very much, my gaze naturally also turned to the company’s stock, which has fallen sharply on the exchange.

EV/EBITDA of 8x and P/E below 14x do not sound high given the company’s historical performance. Profitability and capital returns have been at a top level. Apparently, slowing US growth, tariffs, and the threat of new competitors, among other things, are worrying investors.

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Are there any owners here, or does anyone have a view on whether this might be offering buying opportunities now, or is this a classic value trap in the making? :smiley:

And according to X, the good old Michael Burry has also been scooping up the stock into his portfolio recently. I don’t know if this is positive or negative, as his picks seem to have hit with varying success since the financial crisis.

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I joined the happy ranks of owners during the previous earnings drop. The intention was to buy a medium-sized position for my portfolio in a couple of tranches, but happily, following the dead cat bounce after the drop, I filled the position on rising prices. After that, we were at worst about 30% down, considering currency changes.

For those who appreciate good products, Lululemon’s clothes are pretty much a given, at least once you’ve worn them. The design, cuts, materials, and stitching are first-class compared to competitors. In the sportswear market, it has been quite normal to enter the market with quality and gradually, as volume increases, to grow margins by cutting quality. Lululemon has not gone down this path. Lululemon has sought to expand by broadening its product range and adding, for example, men’s collections and, on the women’s side, expanding from yoga to running and fitness.

Lululemon’s sales have stalled, especially in the United States, and at the same time, inventory levels have risen to a level that worries investors. Lululemon’s products are premium or luxury products in their segment, and could this be a place to use the champagne index to describe consumer confidence and willingness to choose the cheaper product anyway? I don’t believe inventory levels will be a major long-term problem for the company. In sportswear, premium models are not usually discounted, and Lululemon’s products will sell to their customer base with relatively moderate discounts, such as those their online store offered in the summer. I believe the company’s ability to clear inventory is significantly better than its competitors.

I believe the share price, in addition to tariffs and the economic situation, is subject to the usual current pressures on the premium/luxury segment and also more generally the market’s current tendency to drive down stocks due to disappointment, like Novo Nordisk or UNH. The rise will then start with positive news.

I became a shareholder largely due to the excellent quality and innovative product, a loyal customer community, and the exceptional customer experience encountered in their brick-and-mortar stores. When the market offered an earnings drop that I interpreted as an overreaction, I was eagerly putting my own stakes in. However, the dollar has come down further, and my own position is -25%. Surprisingly, I am not buying more myself, but I am not selling my position either. I believe growth opportunities can be found in Europe, China, and elsewhere if the US consumer decides to cough for a while. Clarity has already emerged regarding tariff issues, and I hope summer sales have eased the inventory situation. However, more fear than reality has been baked into the share price, and often things turn out better than feared. The price trend is also calming down, and the previous lows in the downtrend that began in early June are “as far back” as August 11th.

In the name of risk management, however, it is worth buying the company’s products for your own wardrobe. When enjoying these, a possible drop in the stock price doesn’t bother you as much.

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I am one owner here, but naturally, I don’t have a crystal ball. In my opinion, this is a buying opportunity. Otherwise, I wouldn’t have recently become an owner around $195. All investing has its risks, but in my head, the risk-reward ratio clearly turns to the positive side. The valuation is so low that it wouldn’t even need much growth anymore. I believe Lululemon will continue to grow, especially outside the USA, where it still has plenty of room to expand and gain market share.
My own strategy says that if you pick several stocks with these specs for your portfolio, the expected value is really good, even if some turn out to be value traps in hindsight. Not picking them is like throwing away AA in a Hold’em hand because you often lose with it. All of the above was my own reflection and should not be taken as an investment recommendation. Not even if someone like Michael Burry ended up buying Lululemon with me.

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