Lululemon has been the must-have athleisure wear brand for years, but new fierce competitors on the rise might threaten its title.
Founded in 1998, Lululemon is an activewear and loungewear brand that markets itself as high-quality, resistant clothing company that is also stylish and trend-forward, geared towards people with active lifestyles.
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On Thursday, the afternoon before Lululemon (LULU) published its Q2 earnings report for 2024, the stock increased by 0.80%.
However, the athleticwear brand has been steadily declining for a while; the stock is down about 43.5% over the past six months and down nearly 28.4% over the last year.
Its recent troublesome performance has investors worried.
Lululemon's outlook versus analysts expectations
Despite Lululemon's recent declining numbers, the company has beaten analysts' expectations for earnings per share for the last four quarters straight but has yet to come close to analysts' current price target average of 335.55, landing at 261.96.
Analysts are expecting earnings per share of $2.93 for the July quarter.
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The company reported a 3% increase in sales in the American sector in its Q1 earnings report compared to a 17% increase a year ago, which signaled slower growth.
The company also reduced its inventory by 15% in the same quarter, which it partly attributed to its losses.
“We did not maximize the business in the U.S., which was the result of several missed opportunities, including a color palette and our core assortment,” said Lululemon's CEO Calvin McDonald in the Q1 earnings call for 2024.
As for the company's outlook for the upcoming quarter, Lululemon expects net revenue of around $2.4 billion, 9% to 10% growth, and earnings per share between $2.92 to $2.97, according to Q1 earnings report for 2024.
The Lululemon 'it-girl' days might be over
Lululemon has been the 'it-girl' in the athleisure market for multiple years, but its rising competitors may soon take the title away.
Alo Yoga is an LA-based athletic apparel brand founded in 2007 that markets itself as a mix of luxury and performance.
The brand is loved by today's most popular celebrities, including Taylor Swift, Gigi Hadid, and Hailey Bieber, who religiously wear it. Kendall and Kylie Jenner also have featured collections of their favorite pieces from the brand.
Another strong competitor in the loungewear category is Skims by Kim Kardashian.
Founded in 2019, Skims is an American shapewear and clothing brand that promotes body positivity and inclusivity. The brand has gone viral with its successful campaigns featuring prominent pop culture stars, including Sabrina Carpenter, Lana Del Rey, and Kim Kardashian herself.
Another thriving celebrity-founded brand is Fabletics, a sportswear company co-founded in 2013 by actress Kate Hudson. This brand has also partnered with celebrities like Demi Lovato and Khloé Kardashian to create collections that resonate with its Millennials and Gen Z audience.
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With a big customer overlap and similar prices, Lululemon seems to be struggling against its competitors, who prioritize big marketing campaigns with huge celebrities to gain customers.
As of 2023, Skims' annual revenue is expected to be around $750 million, Fabletics was estimated to total $500 million, and Alo Yoga is expected to do approximately $250 million in sales only from apparel in 2024.
This is a far cry from Lululemon's annual revenue of $9.6 billion, as reported in its Q4 2023 earnings.
However, its competitor brands are all less than two decades old compared to Lululemon's over two-and-a-half decade-old history.
These competitor brands may seem small now, but Lululemon's inability to keep up with the current shopper generation might explain why its stock has declined over the past few quarters.
In Lululemon's Q1 earnings call for 2024, company executives said they would create brand awareness through local activations and larger-scale brand campaigns. Yet, it made no mention of potential collaborations with celebrities like its competitors.
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