Investors already had good reasons to be excited about Lululemon Athletica's (LULU 0.78%) stock. The athleisure apparel specialist is on pace to expand sales by 20% in 2022 following a 23% spike in the most recent fiscal year.
But management has much bigger goals in mind beyond the current $7.5 billion annual revenue target. In fact, during a shareholder presentation, executives just detailed their plan for doubling revenue by 2026.
Here are the key takeaways for investors.
Image source: Getty Images.
1. New demographics and markets
If management has its way, Lululemon's sales footprint by 2026 will look much different than it does today. The company is aiming to quadruple its international revenue over the next five years, including by making China a far bigger market. That country is a huge growth pillar for Nike (NKE 0.11%), after all, and Lululemon sees plenty of room to expand deeper out of its current focus in the U.S., Canada, and Europe.
Lululemon is also hoping to extend its brand beyond the traditional yoga focus. That push is increasingly putting it into more competition with Nike in the running, training, and footwear niches. Lululemon is also looking to double its menswear segment.
2. Sticking with what works
The company isn't abandoning the core growth strategy that's allowed it to nearly double sales in the three years ending in 2021. Its digital-first selling approach keeps e-commerce as the focus. But the retailer is still planning to expand its store base at a mid-teen percentage rate over the next several years. Lululemon should grow comparable-store sales in its core U.S. market at a low double-digit compound annual rate, executives estimate.
The company can't achieve those goals without a steady stream of popular product releases. Innovation will be even more important as it seeks to establish an identity in new demographics and new niches like footwear.
3. Boosting earnings
Shareholders should be thrilled to learn that Lululemon is aiming to continue boosting profit margins over the next five years. Gross margin recently crossed 58% of sales in 2021, or about 10 percentage points higher than in 2017.
LULU Gross Profit Margin data by YCharts
That success wasn't just a fluke or a temporary effect from the pandemic. Lululemon's gross margin was rising in the years leading up to 2020, after all, and management is predicting a "modest" expansion of its operating margin through 2026.
For context, operating income is currently 22% of sales compared to 15% of sales for Nike. The footwear giant's margins are weighed down somewhat by its large proportion of wholesale sales to its retailing partners.
Of course, an optimistic growth plan doesn't mean much if the execution is lacking. That's why investors will have to watch metrics like sales, profit margins, and earnings for signs that Lululemon is still on track.
There's no guarantee that the brand will perform as well in new markets and niches as it has in the core yoga segment. But if it does, then Lululemon has a good shot at approaching $13 billion in annual revenue by 2026, compared to just $3.3 billion in 2018 and $6.3 billion in 2021.
