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Lululemon's Growth Strategy in 2 Charts

By Demitri Kalogeropoulos and Rachel Warren – Dec 17, 2021 at 6:36PM

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Why management is so bullish about their athleisure sales potential.

The stock of Lululemon Athletica (LULU 1.70%) has come down from recent highs even after the company reported strong earnings results in the third quarter. 

In this video, from "Beat & Raise," aired on Dec. 10, Fool contributors Rachel Warren and Demitri Kalogeropoulos discuss a few charts that demonstrate how strong the business is, heading into the core holiday shopping season.

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Demitri Kalogeropoulos: This is what they call their "power of three." This is management's five-year goal that they've put out in 2019 and they still talk about it now, so it's very relevant. Rachel mentioned in the men's [clothing], so the three pillars to where they think they can dramatically boost their sales over time. The first one is the mens -- they want to double their menswear over between now and 2023, and it looks like they're on a faster-track to get there.

They probably get there before then, which is great news. The other leg to this is digital. They want to double their digital sales, which was also already really big in 2019. I think I don't know the exact numbers, but for example, I think Nike digital sales were somewhere in that 25%, maybe before the pandemic, whereas Lululemon was already in the 40% range.

Then when consumer demand went crazy last year, Lululemon's digital sales went up to over 60%. I think it's still sitting in that area. It's not really going to go back down, so it's highly tilted in that direction and Lululemon also whereas a lot of other retailers were losing money on their digital sales at the beginning with the first couple of years. These were actually very profitable from the beginning, a little bit like Target. In that way, they were making money on these digital sales at the beginning. That's been great news for investors and then the third part of it is the international.

They want to quadruple this international business, obviously very small. It's not a global business like Nike, anywhere close to that just yet. But that's also the flip side of that coin is you've got a lot of opportunity to grow from there, like major markets, particularly China and Europe. Management is still talking about these things in there. There's a lot of room for all three of these to contribute to a lot of sales growth over time.

Rachel Warren: That's a very helpful visual they have there, sure.

Demitri Kalogeropoulos: Then just to tie this in to what we were talking about, I know it's hard to read here, but this is Lululemon's trailing-12-months annual revenue, you can call it, so it might be hard to read, but it's $5.5 billion is what their trailing-12-month revenue is right now, like through the third quarter. They're targeting about $6.2 billion this year in sales. Last year they were at $4.4 [billion], and the year before that they were at $4 [billion], so they never really dropped for a full year through the pandemic.

But if you just look at that, that's 50% growth in two years, more than 50% growth if they were at $4 billion in 2019 and going up to over $6 [billion] in 2021.

This is the graph investors love to see. It looks like, I forget the mathematical term for that when you've got to increase in slope there, but it's going up into the right, so that's good news.

Demitri Kalogeropoulos owns Nike. Rachel Warren has no position in any of the stocks mentioned. The Motley Fool owns and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.

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