Lululemon’s Revenue Growth Likely To Fall From 24% In Fiscal 2018 To 15% For Current Year

by Trefis Team
Lululemon Athletica
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Lululemon Athletica Inc. (NASDAQ: LULU) , the Canadian athletic apparel retailer, is one of the fastest-growing apparel companies in the world. The company’s healthy lifestyle-inspired athletic apparel and accessories have helped the company achieve strong growth over the last few years. Trefis captures trends in Lululemon’s Revenues over recent years in an interactive dashboard along with our forecast for the current year. Lululemon’s total revenue for fiscal 2018 (ending January) grew 24.1% year-over-year to $3.3 billion driven by new store-openings, comparable sales growth and strong performance across gender and channels. We expect the company to achieve robust revenue growth and add approximately $480 million to its top line in FY’19 – driving strong gains for Lululemon’s stock.

You can view the Trefis interactive dashboard to better understand the revenue trends and division-wise revenue performance, and alter the assumptions to arrive at your own estimate for the company’s revenues. In addition, here is more Trefis Textiles, Apparel and Luxury Good Industry Data

What Does Lululemon Offer?

  • Company-operated stores:  This includes sale of yoga wear, running apparel, training apparel, and sports-wear for women from the company’s retail stores.
  • Direct to consumer: This includes revenues generated from the e-commerce website, other country and region-specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the distribution centers or other retail locations.
  • Other: This includes sales from temporary locations, sales to wholesale accounts, showrooms, through license and supply arrangements, and warehouse sales.

What Are The Alternatives?

  • Lululemon’s business model faces stiff challenges and competition from offerings by its global competitors such as Nike, Under Armour, Urban Outfitters. The Company operates in a rapidly evolving and highly competitive retail business environment.
  • Competition is primarily on the basis of quality, fashion, brand experience and selection

How Have Lululemon’s Revenues Trended Historically?

  • Lululemon has added more than $1.2 billion to total revenue since 2015 at an average annual rate of 17%. Higher revenue growth has been driven primarily by new store openings, comparable store sales growth  and continuous growth of the digital channel
  • Moreover, the company’s profitability has remained upbeat with Lululemon operating at a net income margin of almost 15%
  • Going forward, we expect Lululemon to achieve robust revenue growth, with the company’s revenue increasing by 14.5% (y-o-y) to $3.8 billion in FY 2019

Segment-Wise Revenue Performance

[A] Company-Operated Stores: Brick and mortar business will continue to grow at a steady pace

  • Company-operated stores has added more than $610 million to the top line since 2015 at an average annual rate of 12%
  • This segment consistently contributes a majority of the company’s revenues, with an average revenue share of more than 70% in the last 4 years.
  • However, the segment’s share has declined from more than 73% in 2015 to nearly 65% in 2018 due to faster growth of the DTC and Other segments
  • The segment grew by 16% year-over-year in fiscal 2018, contributing roughly $290 million to total incremental revenues.
  • We expect the segment to continue its sustained growth and report a record $2.3 billion in revenues in FY 2019. The growth is expected to be driven by accelerated store openings and comparable sales growth as demand for the company’s products remains strong

[B] Direct-To-Consumer (DTC):  Increased traffic on the e-commerce websites should help DTC’s revenue figure cross the $1-billion mark in 2019

  • DTC segment has achieved robust growth in the last few years, with revenues more than doubling from $400 million in 2015 to roughly $860 million in FY 2018
  • This growth has been the result of increased traffic on the e-commerce websites, improved conversion rates, and increased dollar value per transaction.
  • We expect this segment to continue its growth trajectory, with revenues increasing at a rate of 23% to $1.05 billion in FY 2019.
  • With increased digitization and higher traffic on the company’s website and mobile apps, the contribution of digital sales to total revenue is expected to cross 28% in 2019.

[C] Other Revenue: A growth rate of 27% in 2019 should help Other Segment’s contribution to Total Revenues touch double digits

  • This segment has been the company’s fastest growing segment. The segment’s revenue has increased more than 2x in the last four years.
  • As a result, the contribution of Other revenue to Lululemon’s revenue has increased from less than 7% in 2015 to more than 9% in 2018.
  • We forecast other segment’s revenues to grow 27% in the ongoing fiscal 2019 to $385 million, likely to be driven by an increased number of temporary locations, including seasonal stores, increase in net revenue from existing outlets, and sales to wholesale accounts

Based on our adjusted EPS estimate for full-year 2019 of $4.25, and using a forward P/E ratio of 43x, we arrive at a price estimate of $183 for Lululemon’s stock which is slightly below the current market price.

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