We came across a bullish thesis on Lululemon Athletica Inc. (LULU) on Substack by Northwest Frontier Capital. In this article, we will summarize the bulls’ thesis on LULU. Lululemon Athletica Inc. (LULU)’s share was trading at $279.63 as of April 1st. LULU’s trailing and forward P/E were 19.10 and 18.02 respectively according to Yahoo Finance.
A customer in a specialty concept store wearing a full outfit of apparels and sports gear.
Lululemon’s recent earnings report presents a nuanced picture of both short-term pressures and long-term potential. While Q1 guidance disappointed, the company’s fundamentals remain intact, with strong margins, a resilient brand, and robust international expansion. Lululemon’s focus on product innovation and “newness” has resonated with consumers, maintaining conversion rates and increasing average order values, signaling that brand loyalty remains high despite macroeconomic uncertainties. International growth, particularly in China, continues to be a key driver, with over 20% growth, even as North America faces cyclical challenges. Management’s emphasis on strategic marketing and disciplined inventory management has preserved sector-leading margins above 20%, reinforcing the brand’s premium positioning.
Despite trading at its lowest valuation in a decade, Lululemon continues to outperform its long-term growth targets set in FY21. The company’s Q4 2024 revenue reached $3.6 billion, up 13% year-over-year, driven by flat comparable sales in the Americas and strong international expansion. However, Q1 guidance fell short of expectations, with projected revenue of $2.335-$2.355 billion and full-year FY25 revenue of $11.15-$11.3 billion, both slightly below consensus estimates. EPS projections of $2.53-$2.58 for Q1 and $14.95-$15.15 for FY25 were also lower than anticipated, raising concerns about North American demand. Management attributed the weaker guidance to softer traffic in the region, driven by inflationary pressures and consumer hesitancy, alongside tough year-over-year comparables. However, Lululemon remains resilient relative to peers, with its brand strength mitigating some of these headwinds.
Encouragingly, while overall traffic may be down, Lululemon has maintained stable conversion rates and increased average order values, underscoring the strength of its pricing power and product appeal. The company’s ability to successfully introduce new product innovations, such as the Daydrift line, demonstrates its ability to defend its market position against competitors like Alo and Vuori. Management’s confidence in product momentum suggests that concerns over competition may be overblown, with attention shifting toward macroeconomic uncertainties instead. The broader market may be underestimating Lululemon’s ability to navigate these challenges, as its FY25 guidance already assumes persistently weak traffic trends, leaving room for potential upside if consumer behavior stabilizes.
Lululemon’s international expansion remains a major growth lever, particularly in China, where sales continue to grow at an impressive pace. Unlike some global brands facing volatility in international markets, Lululemon’s traction in China and other regions has remained steady. Management noted that brand awareness remains low in key international markets, implying significant runway for future growth. With international sales accounting for 22% of total revenue and gaining two percentage points annually, the segment is positioned to enhance overall margins and drive long-term performance.
Margins remain a critical indicator of Lululemon’s financial health. Despite a tough retail environment, gross margins expanded by 65 basis points in FY24, reflecting favorable product mix and disciplined markdown strategies. While management is guiding for a slight contraction in 2024 due to tariffs and foreign exchange impacts, these are external pressures rather than structural weaknesses. The company’s ability to sustain high average order values suggests pricing power remains intact, further supporting long-term margin strength.
Lululemon’s EBIT margins also reflect a mix of short-term caution and long-term strategy. The company has maintained marketing spend at approximately 5% of sales to bolster brand awareness, even during periods of softer product momentum. This approach proved effective in sustaining demand during the holiday season and positions Lululemon well as new product launches accelerate in 2025. Management remains focused on balancing investment in brand activation with financial discipline, ensuring that marketing efforts translate into sustained consumer engagement.
In sum, while macroeconomic pressures and North American traffic concerns have weighed on sentiment, Lululemon’s underlying business remains robust. The company’s international expansion, strong brand equity, disciplined inventory management, and innovative product pipeline provide a strong foundation for long-term growth. With shares trading at historically low valuations, Lululemon presents an attractive investment opportunity, particularly as market concerns appear more cyclical than structural. If management successfully navigates short-term headwinds, there is potential for meaningful upside as investor confidence in the brand’s resilience returns.
Lululemon Athletica Inc. (LULU) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 60 hedge fund portfolios held LULU at the end of the fourth quarter which was 45 in the previous quarter. While we acknowledge the risk and potential of LULU as an investment, our conviction lies in the belief that some 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 was originally published at Insider Monkey.