Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons Lululemon Can Continue to Grow Despite the Coronavirus

By Jennifer Saibil - Apr 3, 2020 at 7:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Though many of its stores remain closed, the athletic apparel retailer can lean on its strong digital operations to keep the business going.

After a year of incredible growth, both in its business operations and its stock price, lululemon athletica (LULU 1.10%) showed that it has what it takes to keep the momentum going after a solid fourth quarter.

Unlike overvalued stocks that are big on hype but low on delivery, Lululemon is a growth stock with a proven and profitable business model. So while the COVID-19 pandemic will take a toll on the company like it will in most industries, Lululemon will continue to outperform long term after what's likely to be a near-term slowdown.

Women doing yoga.

Image source: Getty Images.

Great products

Customers continue to flock to Lululemon's stores to get their fix of athletic-inspired apparel and accessories. The company has a "power of three" mission, which is to increase sales by low double digits by expanding the men's category, the digital channel, and international sales. It has has been meeting its goals and saw better-than-expected numbers in the fiscal fourth quarter ended Feb. 2, 2020.

YOY Growth






Q4 2019






Data source: Lululemon financial filings and management comments.

Will this sentiment change now that stores are closed or people are not out hitting the gym? Maybe not. The company is working to stay at the forefront of customers' minds by offering all sorts of online events, stories, and resources for its community of like-minded, fitness-loving individuals.

CEO Calvin McDonald tried to reassure investors when he said, "[We] do not believe the current situation will change the trend toward people wanting to live an active and healthy lifestyle."

Tight operations

One of the reasons Lululemon has solidly outperformed the broad market is its consistent ability to turn revenue into bottom-line earnings. Diluted earnings per share in the fiscal fourth quarter increased 23% year over year to $2.28 as gross margin improved 70 basis points to 58.0%.

The company also has a healthy supply chain with strong vendor partnerships that helps it maintain proper inventory levels. And it has more than $1 billion in cash and no debt, a great position to work from given the uncertainty surrounding the global pandemic.

Strong DTC business

Lululemon has delivered outstanding digital growth over the past four quarters as well as strong comparable-store growth. 

YOY Growth

Q4 2019

Q3 2019

Q2 2019

Q1 2019

Comparable-store sales










Data source: Lululemon financial filings. Table by author.

This is the age of direct-to-consumer sales, and Lululemon is poised to take advantage of this trend with a digital channel that's delivering impressive results. Regarding recent store closures, McDonald noted during the recent earnings call, "Since closing, our digital business has picked up, but it's obviously not recovering all the volume loss from our store networks being closed, but we have seen our store -- or our online business accelerate in terms of growth."

Unlike rival Nike, which dealt with store closures in China during its fiscal 2020 third quarter and is already getting back on track in that region, Lululemon only closed its stores after its fiscal fourth quarter, so the full effects of the outbreak will not show up until the next report. However, just as Nike has been able to weather the storm backed up by its solid DTC operation, Lululemon is seeing digital carry some extra weight, even if total sales do slow during this unprecedented time.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
$333.42 (1.10%) $3.62
NIKE, Inc. Stock Quote
NIKE, Inc.
$116.01 (-0.88%) $-1.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.