A company that started out as a maker of popular women's yoga pants and leggings has now blossomed into a widely recognized premium athletic apparel brand. But Lululemon (LULU 1.01%) still has bigger ambitions.
On March 8, it debuted its first women's running shoe, the Blissfeel. Priced at $148, it went on sale on March 22 in North America, China, and the U.K. Three more designs -- the Chargefeel, Restfeel, and Strongfeel -- are planned for the current year, and the retailer will add men's footwear in 2023.
Can Lululemon find the same type of success it achieved in athletic apparel in a whole new product category? I think the odds are heavily stacked in its favor.
Image source: Getty Images.
Lululemon is already thriving
Over the past five years, Lululemon stock has gained an outstanding 470%, easily crushing the S&P 500's 113% total return during the same period. Profits that nearly quadrupled from fiscal 2016 through fiscal 2021 (which ended Jan. 30), a shrinking share count, and a higher price-to-earnings multiple are all reasons why the stock has done so well.
During the earlier stages of the coronavirus pandemic, when many stores were temporarily closed, Lululemon was able to lean on its direct-to-consumer distribution model. And in its most recent quarter, e-commerce represented 49% of the overall business. What's more, on a two-year basis, the 28% compound annual growth in the men's segment has outpaced the 20% growth of the women's segment.
Lululemon opened 53 net new stores in fiscal 2021, ending the year with 574 globally. And of the 70 locations that leadership plans to open this fiscal year, 40 will be outside of North America. There is still a long runway for growth ahead as Lululemon works to bring its apparel to the rest of the world.
A new growth opportunity
Although Lululemon is clearly flourishing, the management team isn't resting on its laurels. Having a powerful brand that consumers are willing to pay a premium for affords the business the opportunity to expand into new segments.
"Footwear is the natural next step for us to expand and apply our long history of innovation in fit, feel, and performance, and it represents an exciting moment for our brand," CEO Calvin McDonald said in the press release announcing the news.
Compared to clothing, which has lower barriers to entry, footwear is a more capital-intensive and technically advanced product that also requires more complex manufacturing support. Nike, the worldwide leader in the space, generated 64.5% of its sales from footwear (for the Nike brand only) in the quarter ended Feb. 28. Lululemon today generates virtually all of its revenue from apparel, meaning there is a big opportunity if the company can one day have footwear sales be on par with clothing.
Lululemon's approach to designing sneakers specifically for women, as opposed to making sneakers first with men in mind and then scaling them down to smaller sizes for women, is a major differentiator between it and the incumbents in the space. That should help it capitalize on its already remarkable standing with its core clientele. To catch up to Nike, Lululemon will need to keep finding ways to play to its strengths and stand out in a crowded field. Now that it can literally dress customers from head to toe, Lululemon can extend its reach as a true lifestyle brand.
Shareholders should be optimistic about the company's prospects when it comes to footwear. Lululemon has a brand consumers love with top-notch apparel that focuses on comfort, performance, and design. Expect management to utilize the same playbook for this new category, giving it a solid starting foundation for developing and selling high-quality shoes.
On the most recent earnings call, McDonald said the "immediate response has been incredible" for the Blissfeel shoe. Investors should pay close attention to any updates management provides about this new footwear venture as it has the potential to catapult this top apparel company to another level of success.
