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Lululemon’s growth story is no big deal

Lululemon tends to clump,

Lulu -1.07%

Known for its leggings, the company is in line with a group of stocks that made temporary profits for consumers spending more time at home last year. It proves that it was a thing.

Lululemon’s revenue increased 88% year-on-year to $ 1.2 billion in the quarter to May 2, exceeding analysts’ expectations and independent guidance. Net profit also exceeded Wall Street expectations, up 50% compared to the 2019 period.

Top-line performance reflects Lululemon’s dominance in the so-called athleisure category, which has been much over the past year to take advantage of the growing demand for comfortable clothing and a healthy lifestyle. Other retailers have entered. For reference, the gapof

Athleisure brand Athleta saw a 56% increase in sales compared to 2019 in the last quarter. This is similar to Lululemon’s 57% expansion over the same period. Given that Athleta is a much smaller brand with less than one-third of its revenue, Lululemon’s growth is remarkable.

There is no doubt that the strong financial position has helped Lululemon avoid the problems that plague other companies, such as labor shortages. The company said in a statement after closing Thursday that its initiative to continue paying employees last year helped retain employees. Many other retailers either took employees off or fired them altogether last year when sales plummeted. Last year, Lululemon was able to launch as many new products as Nike, but refrained from others.

Despite strong performance and bright guidance, Lululemon’s share price has barely risen since the announcement of financial results. As always, the problem with Lululemon is not its financial performance, but its assessment. According to FactSet, the company’s stock is currently trading at nearly 50 times futures profits.37x higher than Nike but lower than Under Armorof

64 times.

However, there is a reason for premium. Lululemon is still a fast-growing, unabated company. The average annual growth rate since the same quarter of 2019 has been 25%, and analysts estimate that Nike’s comparable period growth rate is 4.6% and Under Armor’s expected growth rate is 0.7%. This is an increase from a five-year combined annual growth rate of 17% of the pre-pandemic period.

The story of the growth it unfolds seems to be still piled up. Business in China, although sales tripled year-over-year, still account for a small portion of the company’s sales. It is clear that China has a considerable market with demand for well-known Western sports brands. Nike’s annual revenue from China alone exceeds Lululemon’s forecast total revenue for the current fiscal year. In North America, both men’s apparel and non-sports equipment such as women’s tailored trousers are areas where there is plenty of room for expansion.

Lululemon has a reason to relax when you return to normal. So do investors.

Write to Jinjoo Lee at jinjoo.lee@wsj.com

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Lululemon’s growth story is no big deal

Source link Lululemon’s growth story is no big deal

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