lululemon athletica inc. (NYSE:LULU) is experiencing a positive trajectory in its business, driven by ongoing momentum and innovative product offerings. The company has witnessed favorable trends in both its top and bottom lines, attributed to robust foot traffic in stores and strong performance in e-commerce. Leveraging the significance of physical retail alongside the convenience of online engagement, lululemon is effectively executing its Power of Three X2 growth plan.

During the holiday season, the company reported significant increases in net revenues and earnings per share, showcasing its adaptability to evolving consumer preferences. Sales remained well-balanced across channels, categories, and geographies, prompting an upward revision of its outlook for the fiscal fourth quarter. The emphasis on introducing fresh styles contributed to sales growth, with guests responding positively to the company’s innovative and versatile product offerings.

These positive developments are evident in the stock’s performance, with shares surging by 53.1% in the past year. This outpaces the industry’s growth of 6.2% and surpasses the Consumer Discretionary sector and S&P 500’s growth of 2.1% and 21.3%, respectively, over the same period.

Key Drivers of Growth

lululemon’s growth is underpinned by the successful execution of its Power of Three X2 growth strategy. This plan aims to achieve net revenues of $12.5 billion by 2026, representing substantial growth from the 2021 reported figure of $6.25 billion. The strategy focuses on three key drivers: product innovation, guest experience, and market expansion.

Over the next five years, the company anticipates quadrupling international sales, doubling digital and menswear sales, and achieving low-double-digit compound annual growth rates (CAGR) in revenues for both the women’s business and North America operations. The store channel is expected to witness mid-teens CAGR in growth during this period. Expansion plans include entering the markets of China, Spain, and Italy.

For the period spanning 2021 to 2026, lululemon targets a total net revenue CAGR of 15%, with a slight expansion in the operating margin on an annual basis. The company envisions bottom-line growth surpassing revenue growth, expressing confidence in the achievability of these ambitious targets due to its robust financial position.

lululemon is strategically addressing the growing online demand by investing in accelerated e-commerce initiatives. This includes developing websites, enhancing transactional omni functionality, and improving fulfillment capabilities. The company is bolstering omni-channel capabilities with services like curbside pickups, same-day deliveries, and BOPUS (buy online pick up in-store). The mobile app is also being enhanced to offer curbside pickup, with store associates trained to expedite customer transactions.

In the third quarter of fiscal 2023, direct-to-consumer net revenues rose by 18% (up 19% on a constant-dollar basis), with digital channels accounting for 41% of net revenues. E-commerce traffic increased by 20% in the fiscal third quarter.

For the fourth quarter of fiscal 2023, lululemon anticipates net revenues in the range of $3.170-$3.190 billion, reflecting a 14-15% increase from the previous year. Earnings per share are expected to be between $4.96 and $5.00, showcasing an upward revision and highlighting the brand’s effective cost management and operational efficiency.

While there are upward revisions in net revenues, earnings per share, and the gross margin, the company has maintained its previous guidance for SG&A expenses and the effective tax rate. The estimated effective tax rate for the fiscal fourth quarter is 30%, emphasizing lululemon’s commitment to disciplined cost management and a balanced approach to growth and efficiency.

Featured Image: Unsplash @ Marco Tjokro

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