Nike (NYSE: NE) might get all the attention in the sports apparel industry, but Lululemon Athletica (lulu -0.46%) It certainly deserves some recognition. Thanks to strong underlying business performance, the latter's shares have soared 200% over the past five years, a performance that crushes its larger rival's 46% gain.
Even with the huge rise, Lululemon stock is still 16% below its all-time high. This should be seen as an opportunity, especially for a company that still has considerable potential going forward. hHere's why Lululemon is a no-brainer growth stock that investors should buy and hold, even in a market crisis.
Showing your resilience
Look back over the past few years and investors will quickly notice how consistent this company's financial performance has been. Since the second quarter of its fiscal 2020 year, when the pandemic was still roiling markets and the economy, Lululemon has posted 12 consecutive quarters of double-digit revenue growth. On its own, this track record is truly impressive.
But let's consider what's happened in the last three years or so. Of course, there was a global health crisis. In addition to that devastating event, there were supply chain issues, rising inflation not seen in 40 years and rapidly rising interest rates. And now we are in uncertain economic times with some predicting a recession in the short term.
Viewing Lululemon's financial performance in this context is an even greater testament to its resilience. Being able to successfully weather all of those unpredictable headwinds (things that have negatively impacted other companies in the industry to a greater extent) gives me confidence that Lululemon is a stock that investors should consider buying when the market takes a hit. . .
Premium status
To achieve the level of success that Lululemon has achieved in its industry, a company needs to find a way to stand out from the crowd. This company does just that thanks to its premium brand status โ Lululemon merchandise is undoubtedly on the higher end.
In the latest fiscal quarter (Q2 2023, ended July 30), Lululemon posted a stellar result. gross margin 58.8%, an indicator of the strength of the brand. This was an improvement compared to the prior-year period, with management attributing savings on air freight expenses as the primary reason. That gross margin metric is even higher than what other premium consumer-facing companies report, including Apple and ferrari.
While this could be seen as a negative factor because it may limit the total exploitable opportunity compared to a business that has more mass market appeal, I think Lululemon's strong revenue growth proves otherwise.
Another argument against Lululemon's focus on high-end is that in periods of recession or inflation, sales could take a big hit as consumers rush to cut back on discretionary spending when it comes to expensive clothing. Again, the data simply does not support this. In fact, the leadership team projects revenue will increase by 17% to 18% in fiscal 2023.
Growth strategy
The growth story won't end soon, because Lululemon has multiple drivers that can help expand revenue. In the coming years, management will focus heavily on driving digital, men's and international sales.
Lululemon already generates 40% of its sales online, which can benefit margins since these transactions do not generate in-store overhead. It is essential to find ways to maintain the brand's presence in this online format.
This company was founded focusing on women, but the men's segment has seen strong growth in recent years. Athleisure is a trend powerful enough to be attractive to all types of consumers. Men represent about 25% of the company's revenue, so there is a long way to go to reach parity with women's sales.
And when it comes to international growth, Lululemon sees China, unsurprisingly, as a huge opportunity. Nike has a massive presence there, a playbook that Lululemon can use to successfully navigate the world's second-largest economy. The company will continue to open more stores there.
There are a lot of things to like about Lululemon and it's definitely a stock you want to own in a market downturn.
Neil Patel and its clients have no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple, Lululemon Athletica and Nike. The Motley Fool recommends the following options: Long January 2025 calls for $47.50 on Nike. The Motley Fool has a disclosure policy.
