We recently compiled a list of the 7 Best Fitness and Gym Stocks to Buy. In this article, we are going to take a look at where Lululemon Athletica Inc. (NASDAQ:LULU) stands against the other fitness and gym stocks.
The Fitness Industry: An Analysis
The global wellness market has reached a staggering $1.8 trillion, according to McKinsey. The industry has reached $480 billion in the US alone. 82% percent of US consumers consider wellness a top priority, while those in the UK and China report 73% and 87% respectively.
According to Scott Max, gym memberships are almost half of the fitness industry. Of these, 45% of members are millennials, while 35% are Gen Z. Despite these numbers, today’s fitness industry caters more to the needs of Gen Z. Brands are competing to capture their preferences and behavior. According to NielsenIQ (NIQ) and World Data Lab (WDL), Gen Z’s global fitness spending is projected to reach $12 trillion by 2030.
Under such impressions, Gen Z is called the “Generation Active”. According to Les Mills, 36% of Gen Z are active, while 30% are using fitness facilities. 82% of these are members of gyms or studios, with 72% taking a hybrid approach, training both in and out of the gym.
COVID-19 resulted in the significant closure of gyms and fitness studios, but people are now interested again after the pandemic. Fitness marketplaces like Mindbody ClassPass are now thriving by connecting consumers with studios, gyms, and other wellness providers. It’s a subscription-based platform that allows users to access a variety of fitness experiences with a single membership.
The fitness industry is also seeing new IPOs. According to Reuters, the CEO, Fritz Lanman announced that Mindbody ClassPass is aiming to go public in the next 12-18 months, with Goldman Sachs as its lead banker. The money from the IPO will be used for share buybacks, and buying other businesses. ClassPass, which was acquired by MindBody in 2021, is 65% bigger than pre-Covid, according to Lanman. The overall company, MindBody ClassPass, is projected to achieve a 20% growth in revenue for 2024 (~$500 million).
Good physical strength is associated with mental well-being. Brands can benefit from this focus on physical and mental health and utilize platforms like TikTok to connect with them and offer engaging content. This is especially important for Gen Z, as they spend more hours on their phones as compared to other generations, allowing opportunities for personalized training, and flexible hybrid workout options.
According to Exercise, fitness apps are expected to grow by 21% in the next 5 years. Growing trends of fitness influencers have also positively impacted consumers’ wellness and health intentions. Fitness posts have one of the highest engagement rates on Instagram (~3%).
Gen Z or not, hyper-personalization trends are reshaping how consumers engage with health and wellness. With advancements in technology, individuals seek tailored workouts for their bodies. This shift through apps, wearables, and customized workout plans creates both opportunities and challenges for fitness brands.
Bryan O’Rourke, President of the Fitness Industry Technology Council, said that delivering a customized engagement experience is crucial for retaining members, particularly among Gen Z. Health club members are willing to pay more for a high-value, personalized experience, further driving the growth of boutique studios and small-group training.
According to a McKinsey survey of 5,000+ consumers, AI is a major driver of personalized products and services, where people are using biometrics and gen AI to create customized wellness plans and recommendations. Companies that can offer affordability and clear insights for such services are positioned for success.
The future of wellness is built on science, personalization, and a deep understanding of consumer needs. With the prevalence of weight-loss-assisting drugs, like Ozempic, fitness markets were expected to crash. However, Life Time Chairman and CEO Bahram Akradi says such drugs are only making it easier for people to kickstart their fitness journeys. According to Les Mills, 50% of Gen Z want to exercise regularly but struggle to get started. The availability of Ozempic could drive this generation to surpass millennial gym memberships.
Consumers worldwide are now turning away from unhealthy lifestyles. Investing in fitness stocks offers a compelling opportunity for those looking to capitalize on the growing trend of personalized health solutions. With this context, let’s look at the 7 best fitness and gym stocks to buy now.
Our Methodology
To compile our list, we sifted through ETFs and online rankings to compile a list of 12 fitness stocks. We then selected the 7 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A store employee in an athletic apparel store restocking merchandise.
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.”
Overall LULU ranks 2nd on our list of the best fitness and gym stocks to buy. While we acknowledge the potential of LULU as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LULU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
