Buy stock in this athletic apparel maker as it continues to grow and win market share
By staying focused on its core brand, Lululemon Athletica (NASDAQ:LULU) stock has worked its way to the top of the retail sector and provided steady returns to its shareholders.
The athletic apparel maker’s business and stock have steadily grown over the last decade, delivering outsized gains. In 2023, LULU stock rose 60%, beating the returns of the three main U.S. indexes. Despite the pandemic, the company’s share price has increased by nearly 210% in the last five years. Since 2014, LULU stock has grown 895%.
A Good Start to 2024 for LULU Stock
Lululemon has gotten off to a strong start in 2024, announcing in early January that is raising its fourth quarter sales and profit forecasts following better-than-expected sales during the holidays. The company’s stock dropped due to concerns about weak consumer spending following a tepid holiday forecast in December. But now, Lululemon says its sales are speeding up heading into the New Year.
Specifically, the company said that it now expects sales in the fourth quarter of 2023 to total $3.170 billion to $3.190 billion. That’s up from a previous forecast of $3.135 billion to $3.170 billion.
In terms of Q4 profit, Lululemon says it expects earnings per share of $4.96 to $5, compared with its previous forecast of $4.85 to $4.93. Analysts cheered the upwardly revised forecast, foreseeing positive outcomes for Lululemon and its stock.
Growing Market Share and Stock Buybacks
In December of last year, Lululemon issued Q3 2023 financial results that crushed expectations on Wall Street. Profits were 11% higher than forecast, sales were up 19% from a year earlier, and same-store sales increased by 13% from the same period of 2022.
Perhaps most impressive, the company said that the higher sales came from new and existing clients, with Lululemon taking 1.5 points of market share during the quarter.
Owing to the strong results, the company’s board of directors authorized a new $1 billion share repurchase program, which further benefits stockholders.
While Lululemon doesn’t currently pay a dividend, the company has steadily and consistently bought back a growing amount of its own stock. Lululemon’s latest earnings were strong, but the soft holiday guidance caused a drop in share price.
International Expansion and Core Focus
Lululemon executives have stressed that the company’s earnings are being fueled by robust international expansion, with sales increasing 52% in markets outside of the U.S. and Canada. China, in particular, remains a key market for the company.
Lululemon says sales growth in China remains healthy despite the economy slowing in the country of 1.4 billion people. Lululemon currently has 107 stores in China and plans to open 35 more stores internationally in the next year, with most new locations based in Asia.
As part of its quest to gain market share and expand internationally, Lululemon has recommitted to its core focus of making athletic apparel and sneakers, and moved away from some other ventures that distracted from that mission.
This has involved getting out of a questionable foray into online fitness classes. Last September, Lululemon struck a five-year partnership deal with Peloton Interactive (NASDAQ:PTON).
Under terms of the deal, Lululemon has stopped selling its Studio Mirror fitness device, which competed with Peloton’s internet-connected bikes and treadmills. Going forward, Lululemon will become Peloton’s primary apparel partner and its athletic wear will be available for purchase across all of Peloton’s retail and online stores.
Lululemon bought Mirror, a competitor to Peloton, in 2020 for $500 million. But the company has been looking to shut it down coming out of the pandemic as people returned to the gym.
The deal with Peloton allows Lululemon to focus on its core apparel business and open a new sales channel through Peloton’s retail and online networks.
Buy LULU Stock
Lululemon’s share price has pulled back with the broader market to start 2024. The stock is currently trading 9% below the all-time high it reached in December.
Investors should view the dip as a buying opportunity and take a position before the stock inevitably rebounds. Lululemon is a top tier retail stock, proving to be a solid long-term investment.
LULU stock is a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.