Pressures have been mounting for many retailers as the supply chain remains jammed and costs keep rising. But athletic wear powerhouse Lululemon Athletica (LULU -3.79%) keeps pumping out higher sales. A 23% year-over-year revenue increase in the 2021 fiscal fourth quarter demonstrates yet again why this stock has been an overachiever, and why investors should expect another year of excellent performance in 2022.
Fitness wear that fits the sweat life
Lululemon struggled through the beginning of the pandemic like every other retailer, but its declines were smaller and it bounced back faster than many similar companies. That's due to a combination of factors that have led the company to what it is today -- a leader in the athleisure industry that's capturing more and more market share.
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In the 2021 fourth quarter (ended Jan. 31), revenue increased 23% year over year to $2.1 billion, topping off a rebound year with a 42% sales increase over 2020. This performance was despite ongoing supply chain issues that have disrupted many retailers' operations. Lululemon has demonstrated once again that its mix of competitive advantages can fuel strong growth under non-deal conditions.
First of all, the brand has robust pricing power. Loyal customers pay a premium for the quality and reliability of Lululemon's merchandise, and there's a low risk of markdowns. This helps mitigate some of the pressure around increased costs due to supply chain problems. Management is also considering raising prices on a select group of products, which its customers are likely able and willing to support.
Next, the nature of a good chunk of the company's product line (about 45%) is not seasonal. This allows it more flexibility with supplying and maintaining inventory.
Finally, it operates an efficient omnichannel network that offers multiple ways to shop and engage with the brand. Investors shouldn't underestimate what this means to a company's ability to breed loyalty and grow its business.
Although sales growth was strong across the board, the company is making specific progress in its "power of three" strategy, which involves doubling e-commerce, doubling men's, and quadrupling international sales, and it's on track to accomplish this by the end of 2022. I'm very interested in following up on this and seeing where they go from there; by this time next year, they should have achieved their goals and developed new ones to accomplish.
And there are many ways to think about the next steps. In general, research and development plays a big role in launching new and improved products. Lululemon is constantly upgrading with better, technologically advanced activewear fabrics and improved designs. More specifically, there's been a lot of hype around the company's new foray into footwear, starting with a line targeting women. It launched the first of four styles just two weeks ago in the North American market, and CEO Calvin McDonald said that the response has "dramatically exceeded our expectations."
It's also experimenting with small, limited collections, such as its first-ever tennis collection and a golf-wear collection. This strategy of "pop-up" collections lends itself to exclusivity as well as premium price-points, both of which fit well with Lululemon's overall picture.
In other words, there is a lot going on here, but it's very systematic, and all of the noise supports the company's overarching goals and broad strategy. 2022 is shaping up to be another year of healthy growth.
Does it fit your portfolio?
Lululemon has been very good to investors over the years. It has outpaced the S&P 500 by a wide margin, appreciating 634% over the past five years, while the index gained about 90% over the same period. During that time, it's been fairly expensive to buy shares, but the potential justified the premium. Today, shares trade at nearly 50 times trailing-12-month earnings. That's still on the pricey side, but the premium seems justified. Lululemon is not slowing down, and it's guiding for double-digit growth in 2022. Shares are down 4% year to date, and it's not too late for investors to buy in and see gains.
