For apparel maker Lululemon (LULU), it's been an absolute winner of a quarter. The release of its latest earnings report sent the company stock up almost 9% in the last two days of trading.
The numbers suggest a winner in the last quarter, but is it sustainable? Based on what I've seen so far, the answer is a yes, making me quite bullish on Lululemon to come.
Lululemon spent a surprisingly large part of this year in a decline. Around March, the company got a second wind and started an upward rise. The company went from a closing price of $285.14 on March 4 to reach its 52-week high of 434.22 on Thursday, closing at $420.71. (See Lululemon stock charts on TipRanks)
The company turned in adjusted earnings of $1.65 per share against a Refinitiv projection calling for $1.19 per share. Revenue was a similar winner, as Lululemon turned in $1.45 billion against an expected $1.34 billion.
Net income was up in spectacular fashion. Last year in the same quarter, Lululemon turned in $86.8 million in net income. This year, it hit $208.1 million. North American sales increased 63% against this time last year. International sales increased 49%, proving that Lululemon is catching on worldwide.
Online growth has been massive. Online sales accounted for 44% of total sales in the last quarter. Online selling will still be a substantial part of operations going forward, despite the reopening of stores.
Lululemon's at-home fitness device, Mirror, is also doing well. Lululemon notes that Mirror is on track to double its business with men this year. Internationally, it's looking at four times current levels by the end of 2023. However, Lululemon also noted that the company has to spend more on marketing for Mirror. Competition in the connected fitness market is on the rise.
Wall Street's Take
Wall Street consensus analysis calls Lululemon a Strong Buy, based on 12 Buys, and two Holds.
The average LULU price target of $465.93 implies 10.8% upside potential. The price targets range from a low of $410, to a high of $520.
Versatility Makes Lululemon Worth Considering
Athletic wear in general has enjoyed a renaissance of sorts in the last year and a half. Being comfortable at home assumed a whole new mantle of importance, as more people stayed home. Putting on sweats and growing roots into the couch was part of that.
Of course, some also took their newfound time at home to be an opportunity to improve their health. Athletic wear was called for in the pursuit of athleticism. This two-pronged motive set gave Lululemon a new lease on life, and sent it spiraling upward.
Whether actually getting athletic, or just taking advantage of newly minted work-from-home policies to do so in a comfortable fashion, Lululemon proved the one-stop shop of choice for many shoppers.
The fact that Lululemon was also especially focused on online shopping didn't hurt. If coronavirus cases keep rising, prompting further lockdowns, the company should be ready.
Concluding Views
Lululemon shares are significantly higher-priced than they were this time six months ago. There's still plenty of reason to get in on the action. The chances that people will suddenly crave less-comfortable clothing is minimal, giving Lululemon continued market advantage.
The company's focus on online shopping will prove helpful going forward. By also branching out into brick-and-mortar, it gets its hands on a more traditionalist shopping market.
Lululemon shares are pricey right now. It's also a company that has a great handle on the present-day state of retail. It's ready for several different situations and that sheer versatility makes it worth being bullish about.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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