2. Lululemon Athletica Inc. (NASDAQ:LULU)
Number of Hedge Fund Holders: 45
Lululemon Athletica Inc. (NASDAQ:LULU) is an American-Canadian multinational company. It started as a yoga wear retailer but soon expanded to other technical athletic wear, lifestyle apparel, footwear, and accessories, and operates 711 stores worldwide. Other than direct B2C e-commerce and in-store sales, Lululemon Athletica Inc. (NASDAQ:LULU) sells through wholesale, warehouses, showrooms, franchises, and temporary locations.
Lululemon Athletica Inc.’s (NASDAQ:LULU) international sales (~21% of total revenue) are growing as the company expands its global presence. In Q1 2024, the company’s international sales grew by 40% year over year, led by its Chinese sales, which grew 52% year over year. Moreover, international same-store sales rose 29%, and Chinese same-store sales grew by 33% year over year.
The company’s biggest market, the Americas, however, is exhibiting flat sales due to issues with bags, apparel sizes, and narrow color ranges. American sales only rose 4% during the quarter. Analysts think the company is losing its brand power under inflation and changing consumer preferences.
Lululemon Athletica (NASDAQ:LULU) is tapping international markets to navigate these challenges. On May 16, Bloomberg reported that the company will acquire its Mexico franchise partner, taking direct ownership of 15 stores. Since Q1 2023, the company added 49 net new stores.
The company managed inventory levels and avoided overproducing during the quarter. In Q1 2024, inventory levels decreased to $1.3 billion from $1.6 billion in the comparable quarter last year. This led to its revenue growing by 10.4% year over year to $2.21 billion, and its EPS coming in at $2.54, ahead of analysts’ estimates of $0.14.
Lululemon Athletica (NASDAQ:LULU) is growing through innovative product launches. By Fall 2024, it will launch a new line of women’s running apparel and accessories, collaborating with a team of female ultramarathon runners. The company will also focus more on training and golf apparel for men.
Lululemon Athletica’s (NASDAQ:LULU) entry into the men’s segment since 2014 has been a success. It expects overall business to grow to $12.5 billion by 2026 by doubling its men’s segment and quadrupling international revenues relative to 2021. The company also launched its first-ever men’s footwear in February 2024, capitalizing on the men’s market. In Q1 2024, women’s sales increased by 10%, men’s by 15%, and accessories by 2%.
Middle Coast Investing stated the following regarding Lululemon Athletica Inc. (NASDAQ:LULU) in its Q2 2024 investor letter:
“I mentioned last quarter and higher above that I like buying quality stocks on sale. Lululemon Athletica Inc. (NASDAQ:LULU), the 2nd worst performer in the S&P 500 this year, qualifies. I published a full thesis on the stock before its most recent earnings, but the basics: the yoga pants and clothing company has had an amazing post pandemic run that is approaching its end. Its growth in the U.S. is slow/non-existent at the moment, but it is growing very fast in China and Europe. I think that international growth is likely to endure, and that its U.S. slowness is likely to be temporary. Lululemon shares are not ‘cheap’, but they are on sale for an average price, and I think the company will grow faster than average over the next five years. I would be wrong if Lululemon is a fad gone bust, or faces a huge post-pandemic hangover as people get used to leaving the house more. We’ll see.”
