What Will Drive Lululemon’s Near Term Growth?

by Trefis Team
Lululemon Athletica
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Lululemon Athletica (NASDAQ:LULU) pulled off an absolutely stellar beginning to 2018. Revenues in the first quarter soared, with sales improving by a whopping 25% year over year. Earnings jumped by a remarkable 31% compared to adjusted gross profit for the first quarter of fiscal 2017. In general, financials were driven by continued implementation of its growth strategies, coupled with strong synergies due to the re-launch of its website. Further, the company benefited greatly on increased digital sales, which helped push sales at DTC up nearly 60% on a constant dollar basis.

While the Q1 earnings figures are definitely commendable, we must keep in mind that the quarter benefited greatly from easier year over year comparisons. That said, the subsequent quarters will be pitted against stronger financials, and consequently, tougher comparisons; meaning the company may not be able to deliver at the same rate as it has managed in Q1. Regardless, we expect the athletic apparel manufacturer to continue to impress investors going forward.

We have created an interactive dashboard What Is The Outlook For LULU on the company’s expected performance in 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues and earnings.

While the athleisure trend continues to cool off, the larger apparel market is benefiting from a strong uptrend in the health and wellness sector, and an overall good global consumer economy. These developments have definitely helped improve the company’s financials over the past few quarters. This is evident in the market share gains in stores and in e-commerce, that the company has managed to achieve over the last three quarters in particular. We expect these trends to help the company expand its top line in the near term.

Additionally, Lululemon has worked hard on improving its digital offerings over the past few months. In this respect, the company has concentrated on making the online experience as engaging and seamless as possible. With strong digital marketing campaigns and special promotions, the company has managed to record consistent gains from digital over the past four quarters. We expect revenues earned from digital to grow multifold in the year, and for e-commerce to become a large revenue driver in the future.

Lastly, Lululemon realized the need to push internationally in order to best capitalize on rather untapped markets. In this respect, the company decided to use a good amount of  its resources on executing international expansion over the last few quarters. In the last few months, the apparel giant has heavily targeted growing its business in Asia, with special emphasis on China, leading to heavy growth figures in the region. Going forward, we expect the company to benefit heavily from its retail and online expansions in the international space.

All in all, it seems as though the company is on the right path at the moment. With good execution of the existing revenue building initiatives, we expect Lululemon to post positive financials in the near term.

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