What happened
Lululemon Athletica (LULU -1.75%) shareholders trounced the market this week as their stock gained 14% through Thursday trading compared to a slight decline in the S&P 500, according to data provided by S&P Global Market Intelligence.
The spike helped put the athleisure apparel specialist back near positive territory in 2022 after having shed more than 20% of its value through early March. It was powered by an encouraging earnings update from the management team.
Image source: Getty Images.
So what
Lululemon revealed on Wednesday that sales rose 23% through late January. That result met the reduced outlook management issued a few months ago, but it still put the chain at $6.3 billion in annual sales for the full year, or almost $1 billion more than executives initially predicted in March 2021.
The retailer enjoyed solid demand across its portfolio of exercise and athleisure apparel, which is expanding into new geographies and reaching new demographics like men and children. The 40% annual sales increase in 2021 "speaks to the enduring strength of our brand and our ability to deliver sustained growth across the business," CEO Calvin McDonald said in a press release.
Now what
Wall Street was even happier to hear management's bullish outlook for 2022 that calls for another year of double-digit sales gains ahead. Costs are pressuring profit margins, on the other hand, as Lululemon pays more for air freight, executives said in a conference call. But those challenges should be temporary. The company has plenty of quality inventory on hand and is ready to satisfy high demand, too.
The prospect for sales to reach nearly $8 billion in 2022 compared to $4 billion in 2019 suggests that this growth stock isn't close to reaching its full addressable global market. And the likelihood that gross profit margin will reach 60% of sales implies even faster earnings gains ahead. Investors shouldn't let the recent stock price rally deter them from adding such a high-performing business to their portfolios.
