Lululemon Athelitca (NASDAQ: LULU) launched in 1998 and since then has pretty much stuck to its knitting — selling yoga clothes to women and girls.
Along the way, LULU had to get rid of its founder and first CEO for some inappropriate remarks that ruffled the company’s core market. He was replaced by its second CEO, who has fallen victim to the #metoo movement in recent months.
Part of what has happened is that what started as a niche yoga and workout market has expanded into what is now termed “athleisure.” Basically, that is workout clothes that also double as casual wear.
I’m sure you’ve seen plenty of people in these outfits. Whether they’re actually going to a yoga class or a spinning class (or returning from one), or just rolled out of bed to get a gallon of milk at the grocery store, the clothes connote health, activity and time.
And the Lululemon brand also connotes something that other brands would love to have — higher-priced sales. According to GlobalData Retail, LULU has a high level of “price integrity.” That means most customers pay full price for their gear.
If yoga pants are priced at $98, Lululemon fans have no problem paying that. They don’t wait for sales or for some of the stock to be sold by discount retailers. And, in the most recent quarter, LULU saw same-store sales grow a whopping 20%. And margins were up significantly, which is why that price integrity is so crucial.
In Q2, LULU was averaging $1,500 in sales per square foot, which is a huge number. For example, Gap (NYSE: GPS) averages about $340.
Some of this can be attributed to the skillfully integrated marketing strategy between its website and its brick-and-mortar stores. It also helps that it’s a very focused retailer.
Add to this the fact that Lululemon is now starting to sell a line for men — and initial reports are the men’s line is selling briskly.
The other big news is that LULU is moving beyond its focus in North America and expanding in Europe and Asia. Sales in those markets were up 53% in Q2 compared to the same quarter last year.
This is what most clothing retailers dream about. And it’s what has propelled LULU stock up so high, even as the company searches for a new leader, again.
Some analysts think that if a new CEO has trouble adjusting to his or her role, it may be a real issue with the company. But it certainly hasn’t hurt it up to now. Lululemon is expected to generate more than $3 billion in annual sales this year.
The market cap on the stock is about $17 billion. It’s not a bargain here, trading at a price-to-earnings ratio of 57, but there’s a lot of growth to come and very little sign that it’s going to slow down.
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Source: Investor Place