For over a decade, Lululemon (Nasdaq: LULU) has had a stranglehold on the athleisure vogue market. Luluemon inventory hit a excessive of roughly $511/share at first of 2024. However, since then, it has tumbled 40% – unhealthy sufficient to make one of many worst-performing shares within the S&P 500. So, that is the right time to scoop up shares of Lulu at a reduction? Or is that this the start of the top for Lulu’s dominance?
Let’s have a look.
Lulu’s Most Latest Quarter
I dove into Lululemon’s most up-to-date quarterly earnings report (June sixth) to get an thought of how the corporate has been performing not too long ago. Right here’s what I realized:
- Web Income: $2.2 billion, up 10% yearly.
- Gross Revenue: $1.3 billion, up 11% yearly
- Steadiness Sheet: The corporate ended the Q1 2024 with $1.9 billion in money
- Steering: For Q2 2024, Lululemon expects web income of $2.4 – $2.42 billion, which might symbolize development of 9% to 10%
- Inventory Repurchases: The Board of Administrators approved a $1 billion inventory buyback program.
At first look, these outcomes aren’t unhealthy in any respect. However, they’re additionally not overwhelmingly good – particularly for an organization that ought to nonetheless be rising pretty rapidly.
CEO Calvin McDonald acknowledged that there was robust momentum in worldwide markets final quarter. He additionally confirmed that the corporate left cash on the desk by not having sufficient merchandise in inventory to fulfill excessive demand. McDonald additionally acknowledged that he’s assured within the firm’s skills transferring ahead.
Wanting forward, the corporate is specializing in product innovation, visitor expertise, and market growth. Lululemon additionally expects development in these areas:
- Males’s Attire
- E-commerce
- Worldwide web income: Worldwide income at present makes up simply 21% of the corporate’s gross sales. Lulu hopes to quadruple 2024 int’l income relative to 2021.
Nevertheless, so far as unhealthy information, Lululemon introduced the departure of its Chief Product Officer, Solar Choe. In accordance to a couple studies I learn, Choe was a driving power behind product innovation at Lululemon. The corporate will miss Choe and has needed to reshuffle its inside construction following this departure.
So, what does all this imply for traders?
Time to Purchase Lululemon Inventory?
With Lululemon inventory down 40% YTD, it would look like time to deploy Warren Buffet’s well-known recommendation of “purchase an important firm at an excellent value.” However, I don’t assume this is applicable to Luluemon inventory proper now. I imagine that there’s draw back potential forward for Lululemon thanks to a few threat components.
Threat #1 – Elevated Competitors
Years in the past, Lululemon was just about alone within the athleisure area. This wasn’t all too stunning, because the firm basically created athleisure. Positive, you would argue that Nike (NYSE: NKE) or Adidas (OTCMKTS: ADDYY) had been semi-competitors. However, Lululemon was all the time in a vastly totally different area than these two all-in-one athletic attire giants. Lulu goes after a way more area of interest, high-end market.
Lulu’s days of monopolistic energy are rapidly coming to an finish. Right this moment, Lululemon faces steep competitors from firms like Alo, Vuori, Fitness center Shark, Fabletics, and plenty of smaller manufacturers. Granted, none of those firms have grown to the dimensions of Lululemon (but). However, they’re all nonetheless formidable opponents:
- Vuori: This San Diego-based model is price an estimated $4 billion and is contemplating an IPO. It has additionally differentiated itself from Lululemon by primarily concentrating on males (an space that Lulu is trying to for development). For what it’s price, I (a 28-year-old male) personal garments from each manufacturers and like Vuori for a handful of causes.
- Alo: Alo is price an estimated $10 billion. It gained reputation due to its savvy influencer-first strategy to advertising and marketing.
- Fabletics: Fabletics thought of an IPO in 2021 that will have valued it at $5 billion. I couldn’t discover any numbers newer than this.
- Gymshark: Gymshark is valued at slightly below $2 billion. It’s additionally based mostly in the UK which may hinder Lulu’s worldwide growth plans.
With a market cap of slightly below $40 billion, these firms nonetheless pale compared to Lululemon. However, that’s not the purpose. The purpose is that roughly 10 years in the past Lululemon was the one identify in high-end athletic attire. Right this moment, there are many locations the place clients should purchase a $128 pair of leggings or pants. Two of those rivals (Vuori and Gymshark) additionally function in verticals that Lulu is trying to for development.
Gross sales information for the 4 rivals listed above is basically non-public. So, I used one other metric to check them to Lululemon: Instagram followers (Nasdaq: META). Right here’s how they stack up:
- Gymshark: 7 million followers (Gymshark Girls has 3.5 million)
- Lululemon: 5 million
- Alo: 2 million
- Fabletics: 2 million
- Vuori: 1 million
Should you’re pondering of shopping for Lululemon inventory, you need to contemplate how this competitors may eat into Lululemon’s development over the subsequent 5-10 years. Lululemon has such a head begin so it’s unlikely that it’ll get absolutely dethroned from its high place. However, the corporate additionally gained’t benefit from the monopolistic place that it had over the previous 12 months. Loads of former-Lulu male clients could begin choosing Vuori whereas abroad athletes could select Gymshark.
Threat #2 – Dupe Tradition
The rise of dupe tradition is one other subject that would harm Lululemon inventory within the coming months. A “dupe” or duplicate is only a knockoff of an present product.
The price of residing within the US has risen dramatically previously few years. In response, US shoppers are turning to dupes greater than ever. In Lululemon’s case, extra individuals are shopping for off-brand yoga pants for $40 as a substitute of shelling out $128 to purchase Lulus. Should you seek for #Lululemondupe on TikTok, you’ll see tons of movies on the topic that routinely get thousands and thousands of views. I additionally took a take a look at Google Developments information, which confirmed that web searches for “lululemon dupe” have been persistently trending greater since 2020.
Lululemon isn’t the one firm that has to take care of dupes. In actual fact, most high-end manufacturers can anticipate their merchandise to get copied. For instance, Nike (Nasdaq: NKE) has all the time had a difficulty with pretend Air Jordans but it surely has by no means appeared to harm the corporate’s income.
Proper now, it’s laborious to inform if dupe tradition is hurting Lululemon’s gross sales. However, it’s a sufficiently big subject that Lululemon felt the necessity to addressed it. Both means, dupes are one other threat issue for Lulu transferring ahead.
Threat #3 – Gen Z’s Dishevelled Pants Pattern
Lululemon has made a residing off of its skin-hugging yoga pants. However, from what I’ve seen, Gen Zers present a desire for baggier sweatpants, hoodies, and t-shirts.
A 5-year Google Developments chart for “dishevelled pants” helps this thesis. However, apart from that, I don’t have a lot tangible information to level to for this pattern. It’s simply one thing I’ve noticed on social media and in my very own life. In my expertise, tighter garments appear to be on their means out whereas overly dishevelled clothes is in. I scanned Lululemon’s web site and didn’t discover something that regarded like they’ve caught on to this pattern. Lululemon additionally launched in 1995 and had a stranglehold on shoppers within the 2000s and 2010s. However, by this level, Lulu may not resonate as a lot with youthful buyers. If this doesn’t change, I wouldn’t be stunned if Lululemon began to get stereotyped as an “older folks model” within the coming years and misplaced floor to “cooler” upstarts (just like the aforementioned Vuori, Alo, Gymshark, and many others). That stated, vogue traits fluctuate by area and may change rapidly.
That is admittedly the weakest threat on this record. However, it’s nonetheless a possible threat nonetheless.
Now, again to the query at hand.
Ought to You Purchase Lululemon Inventory?
I wouldn’t. It looks like Lulu is dealing with fairly just a few headwinds over the approaching months. The corporate simply misplaced a key govt in Solar Choe. It’s additionally dealing with steep competitors within the precise verticals the place it’s hoping for development (males’s put on and worldwide markets). The inventory has additionally been getting punished up to now this 12 months, which is an indication that investor sentiment has modified for Lululemon – maybe the hardest impediment to beat.
I don’t essentially assume that Lululemon inventory will tank over the approaching months. However, it’s seemingly that Lulu will underperform the market or at finest break even. Even when Lulu hits its aim of 10% income development in 2024, I don’t see traders getting notably excited.
That stated, vogue traits can change on a dime. All it takes is the blowout success of 1 product to vary the narrative – a feat that Lulu has achieved many occasions.
I hope that you just’ve discovered this text helpful relating to discovering whether or not or to not purchase Lululemon inventory. Should you’re all for studying extra then please subscribe under to get alerted of latest articles.
Disclaimer: This text is for common informational and academic functions solely. It shouldn’t be construed as monetary recommendation because the creator, Ted Stavetski, isn’t a monetary advisor.
Ted Stavetski is the proprietor of Do Not Save Cash, a monetary weblog that encourages readers to take a position cash as a substitute of saving it. He has 5 years of expertise as a enterprise author and has written for firms like SoFi, StockGPT, Benzinga, and extra.