It's rare for a company to generate strong quarterly earnings despite macro or industry factors. In recent years, Lululemon Athletica (NASDAQ: LULU) has stood apart. The shares are a big market outperformer due to outstanding fundamentals. The past decade has seen an 828% increase. Comparison: the Nasdaq Composite returned 315% throughout that time
This fast-growing apparel business is a must-buy for your portfolio for three reasons. No firm dominates the global apparel market like Nike. One of the most recognised brands for decades.
Lululemon has grown into a strong brand recently. Lululemon uses community-driven and grassroots marketing instead of expensive celebrity and athlete endorsements. This strategy has turned the company into an athleisure leader from a marketer of women's yoga pants.
Nike and Lululemon's distribution strategy differ greatly. Not using third-party retailers or wholesale accounts advantages the latter. Instead, Lululemon's website provides 41% of income and its 686 company-owned stores the remainder. This method improves inventory and merchandising, reducing markdowns and other promotions.
Also boosts the brand's industry status. This has given them huge pricing power. Lululemon's gross margin has averaged 50% for five years. That beats Nike's 44%.
Another reason to acquire Lululemon shares is its great financial performance. Revenue and net income grew over 20% annually between Q3 2018 and Q3 2023. More noteworthy, Lululemon's top and bottom lines have grown by double-digits despite macroeconomic challenges in recent years.
That should reassure investors that the business can succeed regardless of the economy. Consumers are eager to spend on Lululemon products, even pricey ones. Durable demand trends help companies generate high investment returns.
It's simple to feel positive about Lululemon's future. After fiscal 2021, management aimed to quadruple revenue to $12.5 billion by fiscal 2026. With trailing-12-month sales of $9.2 billion, Lululemon appears ahead of track. The executive team wants to expand into men's and enhance digital and overseas sales. Lululemon produced 65% of its revenue in the U.S. in the latest fiscal quarter, leaving much unfulfilled potential abroad.
Lululemon shares have smashed it. Today, a $1,000 stock investment from March 2018 is worth almost $3,100. While I doubt this performance will reoccur, investors have cause to be optimistic. At this writing, the stock has a 32 ahead P/E ratio. That seems pricey, but Lululemon's strong brand, huge profitability, and expansion prospects take precedence. Given all those positives, the stock is a no-brainer
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