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Shares of Lululemon Athletica (LULU) have underperformed the broader equity markets in 2024. The company, which provides premium athletic apparel and accessories, witnessed its stock drop by over 32% year-to-date. This decline reflects weaker U.S. sales, product challenges, and increased competition. These factors created uncertainty about the company’s ability to maintain its growth trajectory in a challenging retail environment.
Despite these struggles, Lululemon has staged a remarkable recovery in recent months. Over the past three months, the stock has rebounded by more than 35%, signaling investor confidence in its long-term potential. Last night's third-quarter earnings report has provided a substantial boost, with shares surging more than 9% in pre-market trading ahead of the bell this morning. Lululemon's better-than-expected performance for Q3, coupled with an optimistic outlook for the holiday season, helped reassure investors.
Thanks to the anticipated holiday boost, Lululemon also raised its full-year guidance for 2024 and announced an additional $1 billion increase in its share buyback program. These moves reflect management’s confidence in the company’s financial health and ability to navigate a competitive landscape.
The improved outlook and strategic measures suggest that Lululemon may be poised for sustained growth heading into 2025. This raises the question: Is this rebound the start of a long-term uptrend or a short-lived recovery?
Solid Third-Quarter (Q3) Performance
Lululemon's third-quarter earnings report reveals promising growth. Total revenue reached $2.4 billion, a 9% increase year-over-year, surpassing analysts' expectations of $2.36 billion. This growth was led by strong performances in international markets, particularly in mainland China, where revenue surged 39%. The Rest of the World segment grew by 27%, while the Americas region saw a more modest 2% increase.
The company's adjusted operating margin increased by 70 basis points to 20.5%, while adjusted earnings per share (EPS) rose 13% to $2.87, beating the forecasted $2.72. The positive financial results highlight Lululemon’s resilience and ability to maintain profitability despite challenges.
Moreover, the company is showing continued confidence in its business, having authorized a $1 billion increase in its share repurchase program. In total, Lululemon has repurchased $1.4 billion worth of stock so far in 2024, with an additional $1.8 billion remaining available for repurchases. These strategic actions are aimed at boosting shareholder value while signaling financial health and optimism.
U.S. Business Transformation
A key aspect of Lululemon’s recovery strategy is revitalizing its U.S. business. The company has introduced a new reporting structure within its product team to enhance efficiency and innovation. Lululemon is also focused on refreshing its merchandise lineup with seasonal new products, ensuring its offerings stay relevant and appealing to consumers.
Lululemon also focuses on its membership program, which now boasts 24 million members. The program drives strong engagement, with members enjoying perks such as early access to new collections and exclusive events. This approach helps deepen customer loyalty, increasing revenue per guest.
While Lululemon’s brand awareness in the U.S. is still relatively low compared to some competitors, this presents a significant opportunity for growth. The company plans to expand its store presence and launch new marketing campaigns to boost its brand visibility and drive market share domestically.
International Expansion
Lululemon’s international growth remains robust, with notable success across its top markets. In China, the company has capitalized on the government’s “Healthy China 2030” initiative, which has helped it gain a strong foothold in the region. Lululemon also continues to grow its presence in other international markets, particularly in Australia and Europe, and has ambitious plans for further expansion.
The company is poised to open new stores in Italy and expand its franchise model into countries like Denmark, Belgium, Turkey, and the Czech Republic. These moves will allow Lululemon to tap into underserved markets and broaden its global footprint.
Product Innovation and Brand Strength
Lululemon’s product strategy remains a key differentiator. It continues to innovate within its core categories. Looking ahead, Lululemon has an exciting pipeline of new products designed to elevate its premium positioning. The company’s commitment to high-quality, stylish, and performance-driven athletic wear sets it apart from competitors. As the athleisure market expands globally, Lululemon’s strong brand identity and product offerings give it a competitive edge.
Lululemon On Track for Solid Growth
Lululemon is focused on more than short-term recovery and achieving long-term growth. The company aims to double its top line from 2021 to 2026. Notably, Lululemon is ahead of schedule, achieving a CAGR of 19% over the past three years, surpassing its initial target of 15%.
Wall Street analysts maintain a “Moderate Buy” consensus rating on Lululemon stock, and some are likely to revise their outlooks upward based on the company’s recent positive results and growth momentum.
Conclusion: A Compelling Investment Opportunity?
Despite facing a challenging year in 2024, Lululemon’s recent recovery, strong product innovation, and expanding international presence suggest it is well-positioned for sustained growth in 2025 and beyond. The company’s financial strength, focus on customer loyalty, and strategic expansion into underpenetrated markets provide a solid foundation for future success.
Given the recent rebound and solid financial results, now may be an ideal time to consider adding LULU to your portfolio.
