Investors want their companies to set clear long-term goals and achieve those goals. It sounds simple, yet not many companies do it. One rare example is Lululemon (LULU 0.07%), seller of premium athletic apparel and accessories.
While many businesses are cutting back their growth targets in the face of a possible recession, Lululemon is pursuing its growth strategy with a steadfast focus. The recent news of the company's entry into the Spanish market is going relatively unnoticed, but it provides another validation that Lululemon is deftly navigating the macro headwinds of historically high inflation and uncertain economic conditions to march toward the goals it has set out for itself. Let's discuss further why taking a closer look at Lululemon will be a smart decision for investors.
Moving onward and upward
Lululemon opened its first store in 1998 out of a small yoga studio in Vancouver, Canada. Since those humble beginnings, the company has emerged into a giant with $36 billion in market cap and one of the most dominant and beloved consumer brands. And, more importantly, the company has produced market-crushing returns for its investors since going public in 2007 (1,781% returns vs. S&P 500's 162% over the same period).
So, how does a company, starting so small, reach such magnificent heights? A big part of that answer for Lululemon may be rooted in the high quality of its products, but an equally important driver is its methodical execution, especially in more recent times since Calvin McDonald joined the company as CEO in 2019. McDonald set out the ambitious goal of doubling the company's 2018 revenue of $3.3 billion by 2023, with a three-pronged approach, termed as Power of Three: double online revenue, double revenue of men's products, and quadruple international revenue.
And on its most recent investor day, in April 2022, McDonald told investors that Lululemon has already met two out of those three goals of doubling online and men's products revenues, two years ahead of the schedule, and will meet its international target by the end of 2022, one year ahead of its plan. The company will also more than double its total revenue in 2022.
Image source: Getty Images.
Yet Lululemon is not resting on its laurels. Rather, it is challenging itself by setting another aspirational long-term goal: double the 2021 revenue of $6.25 billion to $12.5 billion by the end of 2026 with continued focus on the three levers that have been guiding its expansion. Lululemon is calling it Power of Three x2.
By doubling down on its strategy -- with Power of Three x2 -- Lululemon is confirming the large market opportunity that lies ahead of it, and the company feels confident in its strategy.
Building a stronger position in the athleisure market
About a week ago, Lululemon announced that it is opening two stores and a local e-commerce website in Spain. The company's Spanish website will be operational in late July, and its two stores -- one in Barcelona and one in Madrid -- will begin serving consumers in September. Spain is the first new market in Europe that Lululemon has entered since 2019.
Lululemon's Spain move is not getting much attention, but it is crucial on multiple fronts. First, it validates the company's focus on international expansion -- a key pillar of Power of Three x2. Secondly, the current macro environment with high inflation and rapidly diminishing consumer confidence doesn't seem friendly for business growth. However, Lululemon, with its international investment, is suggesting that it is in a position to withstand economic uncertainty and doesn't intend to compromise on its growth plans. And finally, as weaker competitors struggle to survive in a down market, Lululemon is further strengthening its position as a leader in the athleisure market.
A resilient business with many desirable qualities
Most public companies usually provide sales and profitability guidance only for the upcoming quarter and the current fiscal year. Lululemon is taking that communication much further with a significantly longer view of its business. Also, it's putting a stake in the ground by saying not only what it wants to accomplish but also how it plans to achieve those goals. The ability to project business outcomes over a five-year period with such level of specificity demonstrate Lululemon's deep understanding of the retail marketplace and its confidence in its capabilities. And by communicating these goals publicly, the management is willing to be transparent with all its stakeholders and holding itself accountable. All qualities investors seek in their businesses.
As of its first-quarter of fiscal 2022 (ending on June 2, 2022), Lululemon had grown its sales over the past three years at a compound annual growth rate (CAGR) of over 27%. What's really remarkable is that the company achieved those results while overcoming the devastating COVID-19 pandemic and the seemingly never-ending global supply chain issues that are bringing many businesses to their knees. Lululemon is a resilient enterprise with a clear focus and is executing very well.
Lululemon's move to enter Spain may be going largely unnoticed, but it's putting a big smile on the faces of savvy investors. This longtime winner looks set to extend its winning streak with Power of Three x2, and investors with long-term time horizons may want to find a spot for Lululemon in their portfolios.
