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Why Lululemon Athletica Stock Climbed 35% in the First Half of 2020

By John Ballard – Updated Jul 6, 2020 at 11:50AM

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The yoga-inspired retailer has one of the best e-commerce operations in retail.

What happened

Shares of lululemon athletica (LULU 1.42%) gained 34.7% through the first six months of the year, according to data provided by S&P Global Market Intelligence. Lululemon entered the year with revenue up 21% and earnings per share up 28% in fiscal 2019. 

Store closures around COVID-19 initially sent the stock down in March, but investors anticipated Lululemon would be fine, especially given the investments in the e-commerce business, which made up nearly a third of its sales last year. The stock started to rebound in April, and a strong fiscal first-quarter earnings report showed incredible strength in the direct-to-consumer business, validating investors' optimism.

A group of men and women wearing athletic wear.

Image source: Getty Images.

So what

Lululemon has a slick online operation after efforts to improve it in recent years. Recent investments in checkout, search, and digital marketing paid off with 70% growth in e-commerce sales on a constant-currency basis in the fiscal first quarter (which ended May 3).   

First-quarter revenue fell 17% year over year due to the store closures. But with stores starting to reopen, investors are more focused on the potential for Lululemon to emerge stronger from this crisis. Indeed, 54% of its total revenue last quarter was generated from the direct-to-consumer channel, which is a staggering figure for any apparel store and bodes well for this forward-thinking athletic-wear brand.

Now what

Lululemon has huge potential to expand internationally, where management expects sales to quadruple from 2018 levels by 2023. And more growth in the e-commerce business should boost margins, leading to strong earnings increases. 

Lululemon gave investors another reason to be bullish with the recently announced $500 million acquisition of MIRROR, a maker of interactive fitness displays. This positions Lululemon to build even deeper customer relationships through subscriptions to workout programs. 

With new products, new digital experiences for guests, and expansion opportunities in Europe and Asia, investors have much to look forward to with this fast-growing retailer.

John Ballard owns shares of Lululemon Athletica. The Motley Fool owns shares of and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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