Lululemon Athletica (LULU -0.07%) is a growth stock, but there's a better reason to like its shares today beyond just rising sales.
In this video, from "Beat & Raise," aired on Dec. 10, Fool contributor Demitri Kalogeropoulos outlines how the retailer has seen a big boost in profitability in recent years, which might continue into 2022 and beyond. That success might power even stronger returns for shareholders, too.
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Demitri Kalogeropoulos: Exactly right. I have been covering the stock for a while and I do remember their CFO a couple of years ago, maybe 2018-ish, I'm going to share part of my screen too, here again, talking about their gross profit margin in particular and how they thought they had many years of ability ahead to expand that. What I have here, again I know you can't really read the name so much.
The blue line on top is Lululemon's gross profit margin and the orange line underneath that is Nike's. Again, these are not exactly comparable but they are in similar industries. What's interesting here to see around that 2016 range is, and you can see this expanding from around 49 percent sales to 58 and who knows where it's going to go? Towards 60 percent and it's definitely what management has hoped they can do in this, whereas Nike is a little bit more up and down around that 46 percent range.
Basically, a lot of stuff is involved in that but the digital selling model is one big one and then they're just doing a great job releasing innovative products and their customers are just loving the stuff that they're releasing.
That's a huge part of the bullish thesis for this company because when you have a brand that they're making so valuable and your customers are obviously excited about that, it opens up new doors like Rachel was talking about for getting into menswear or other niches you've got. If you love them for this kind of pants, you might like them for this thing, and then also opens up other international markets to which we're seeing them jump into.
Those are all exciting and that helps explain why you see that fantastic growth of over $6.2 billion this year in annual sales versus 2-4 years ago, 2.5 I think I recall four years ago. I think Nike is in that 30-ish billion range. It will take Lululemon a long time to get there, but there's no reason they couldn't break $10 billion in annual sales in not so long.
