Lululemon Athletica's (LULU 0.77%) stock recently rallied to its highest levels in nearly three months after it posted its fourth-quarter earnings report on March 29. The athletic apparel retailer's revenue rose 23% year-over-year to $2.1 billion, which met analysts' expectations. Its adjusted earnings increased 31% to $3.37 per share and beat estimates by a dime.
Those headline numbers seemed solid, but Lululemon's stock remains roughly 24% below its all-time high from last November. Should investors buy some shares of this growing retailer in April before the bulls rush back in?
Image source: Getty Images.
A healthy post-lockdown recovery
For the full year, Lululemon's revenue rose 42% to $6.3 billion, which accelerated significantly from its 11% growth in 2020.
Lululemon suffered a slowdown in 2020 as it temporarily shut down its brick-and-mortar stores during the onset of the pandemic. However, the robust growth of its direct-to-consumer (DTC) channel, which was mainly supported by its e-commerce platform, offset that slowdown.
It stopped disclosing its comparable store and total comparable sales growth (which include both its brick-and-mortar and online channels) in the first half of 2021, since the comparisons were skewed by its temporary store closures in the first half of 2020. But it brought back both key growth metrics in the second half of 2021 after the year-over-year comparisons normalized. Keeping that in mind, here's how the company fared over the past year:
|
Growth (YOY) |
Q4 2020 |
Q1 2021 |
Q2 2021 |
Q3 2021 |
Q4 2021 |
|---|---|---|---|---|---|
|
Comparable Store Sales |
(28%) |
-- |
-- |
32% |
32% |
|
DTC Sales |
94% |
55% |
8% |
23% |
17% |
|
Total Comparable Sales |
21% |
-- |
-- |
27% |
22% |
|
Total Revenue |
24% |
98% |
61% |
30% |
23% |
Data source: Lululemon. YOY = Year-over-year.
Between 2019 and 2021, which smooths out the disruptions from the pandemic, Lululemon's annual revenue grew at a compound annual growth rate (CAGR) of 25% as its gross margin improved by 180 basis points.
It's achieving its "Power of Three" goals ahead of schedule
Nearly three years ago, Lululemon introduced its ambitious "Power of Three" growth strategy, which aimed to generate double-digit annual revenue growth through the end of 2023 by doubling its men's revenue, doubling its digital revenue, and quadrupling its international revenue.
The COVID-19 pandemic cast a dark cloud over those plans, but Lululemon's management reiterated those goals throughout the crisis. During its latest conference call, CEO Calvin McDonald said the company had actually "delivered revenue growth in excess of our Power of Three targets."
In fact, Lululemon already achieved two of its goals of doubling both its e-commerce and men's revenues ahead of schedule in 2021. McDonald also said the company was "on track to quadruple" its international revenue "by the end of 2022." Its ability to hit these targets early -- even though it didn't originally factor in a global pandemic -- indicates it's firing on all cylinders.
Lululemon was also one of the few brick-and-mortar retailers that significantly increased its store count throughout the pandemic. It ended 2021 with 574 company-operated stores, compared to 521 stores at the end of 2020 and 491 stores at the end of 2019. That expansion highlights the strength of its brand and its balance sheet.
Rosy guidance and a confident buyback
For the first quarter of 2022, Lululemon expects its revenue to rise 24%-26% and for its adjusted EPS to grow 19%-23%.
For the full year, it expects its revenue to rise 20%-22% and for its adjusted EPS to grow 17%-20%. Based on those expectations, the stock trades at about 40 times forward earnings and six times this year's sales.
Those valuations might seem high relative to those of other brick-and-mortar apparel retailers like Gap (GPS -0.80%), which competes against Lululemon with its own Athleta activewear brand and trades at just eight times forward earnings and 0.3 times this year's sales. However, Lululemon arguably deserves to trade at a premium to Gap because it's growing much faster.
Lululemon also repurchased 2.2 million shares for $813 million in 2021, and just launched a fresh $1 billion buyback plan. Those confident buybacks indicate the company can still boost its shareholder value as it opens new stores, expands its DTC channel, and challenges Peloton (PTON -0.97%) in the connected fitness market with its Mirror devices.
It's still one of the best retail stocks
Lululemon has come a long way under Calvin McDonald, who took the helm in 2018 and stabilized the retailer after its product recalls, personal controversies regrading its founder Chip Wilson and former CEO Laurent Potdevin, and decelerating comps growth spooked the bulls.
Lululemon's fourth-quarter report, sunny guidance, and buyback plans all indicate that growth will continue for the foreseeable future. The stock isn't cheap, but I think it still has plenty of room to run this year.
