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A decade ago, Lululemon’s founder and former chief executive stirred controversy by attributing wear and tear issues with the company’s yoga attire to customer bodies. However, that storm has long passed.
Lululemon stands out as a remarkable player in the retail industry, defying the challenges faced by other apparel retailers. With its affluent customer base, strategic focus on developing direct-to-consumer business and expanding overseas sales, this yoga-inspired activewear brand is successfully navigating the turbulent US retail landscape.
The company’s recent quarterly earnings validate its strength. Lululemon reported an impressive 18% increase in both sales and net income for the fiscal second quarter, prompting an upward revision of its full-year guidance. Anticipated revenue for 2023 may surge by up to 18%. Furthermore, diluted earnings per share are expected to exceed previous projections, ranging from $12.02 to $12.17 for the year.
This optimistic outlook sharply contrasts with the more cautious comments from competitors Peloton and Nike, who also compete for fitness enthusiasts’ spending.
While sales in North America grew by 11% during the quarter, buoyed by high-income consumers’ ongoing preference for workout staples, it is the tremendous growth in China that catches attention. Lululemon experienced a remarkable 61% increase in revenue in China, making it the company’s third-largest market after the US and Canada. Demand remains robust in China, even amidst a slowing economy.
Lululemon’s shares, which have already soared 22% this year, are currently trading at 30 times forward earnings. This valuation may seem expensive compared to Under Armour’s multiple of 15 times. However, it is important to note that during the pandemic, Lululemon traded at a staggering 80 times multiple. Rapid growth justifies higher multiples, making it an enticing opportunity for investors.
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