Lululemon's (LULU -0.03%) stock price has soared about 460% over the past five years, making it one of the market's top-performing apparel stocks. It dominated the growing niche of high-end yoga and athleisure apparel, and it continued to generate double-digit sales growth even as many other apparel retailers struggled to squeeze out single-digit growth.
Lululemon's e-commerce investments paid off during the pandemic as its robust online sales offset its temporary store closures. It also bounced back from the crisis a lot faster than many of its industry peers. But let's review three lesser-known facts about Lululemon -- and how they might make this resilient retailer an even more attractive investment.
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1. Lululemon wasn't always a great growth stock
Lululemon might seem like a great growth stock today, but its future looked bleak just a few years ago. It suffered a series of brand-tarnishing recalls, its founder Chip Wilson attracted a lot of unwanted media attention with a long list of controversial comments, and CEO Laurent Potdevin resigned in early 2018 amid allegations of inappropriate behavior.
Lululemon's revenue growth was also cooling off as it struggled to roll out the right mix of products for its core consumers. Its total comparable-store sales rose just 7% in fiscal 2017 (which ended in Jan. 2018), compared to its 6% growth in fiscal 2016 and 10% growth in fiscal 2015.
Its total revenue grew 13% in fiscal 2017, which decelerated from its 14% growth in fiscal 2016 and 15% growth in fiscal 2015. At the time, that slowdown suggested that Lululemon's high-growth days could end as formidable competitors like Nike (NKE 0.66%), Adidas (ADDYY -0.47%), and Gap's (GPS -3.83%) Athleta expanded into its backyard.
2. Lululemon was revived by a disciplined CEO
Calvin McDonald, the CEO of the Americas division for LVMH's Sephora, took over as Lululemon's permanent CEO in August 2018. The following April, McDonald unveiled the "Power of Three" plan to double the company's digital revenue, double its men's revenue, and quadruple its international revenue from fiscal 2018 within the following five years.
Lululemon achieved its digital and men's targets ahead of schedule in fiscal 2021, even as the pandemic disrupted its business, and it expects to quadruple its international revenue by the end of fiscal 2022. Its annual revenue rose 21% in fiscal 2019, grew 11% in fiscal 2020 in spite of the pandemic, and increased 42% in 2021. Its gross margin also rose from 55.9% in fiscal 2019 to 57.7% in fiscal 2022, which suggests it still has plenty of pricing power.
This April, Lululemon launched a new five-year growth plan called "Power of Three x2." The goals are the same: it plans to double its digital revenue, double its men's revenue, and quadruple its international revenue from fiscal 2021 within the following five years. It expects that expansion to boost its annual revenue to $12.5 billion by fiscal 2026, which would represent a compound annual growth rate (CAGR) of 15% from fiscal 2021. During its latest conference call, McDonald said its international expansion -- one of the "key pillars" of its new Power of Three plan -- was already off to a "great start."
3. It continues to expand its brick-and-mortar footprint
Many apparel retailers reduced their number of brick-and-mortar stores over the past decade to cut costs as they struggled with sluggish mall traffic, intense competition from online stores and fast fashion retailers, and the oversaturation of the global apparel market. Yet Lululemon continues to open new stores in this tough market, which complements the expansion of its own digital marketplace and reduces its dependence on third-party resellers. It ended the second quarter of fiscal 2022 with 600 stores, compared to just 406 stores at the end of fiscal 2016.
That ongoing expansion could widen Lululemon's moat against more diversified athletic apparel brands like Nike and Adidas, while ensuring that it stays far ahead of fledgling competitors like Gap's Athleta. It also hasn't fallen into the trap of driving its sales growth with new store openings: Its total comps rose 28% in the first quarter of fiscal 2022 and grew 23% in the second quarter -- so its older stores are still attracting plenty of customers.
Should you buy Lululemon's stock today?
Lululemon's stock isn't cheap at 33 times forward earnings, and its gross margins will likely be squeezed by higher freight costs, a slight increase in markdowns, and higher investments in its direct-to-consumer channels over the next few quarters. However, I still believe Lululemon is one of the market's top growth stocks. It's locked in a lot of loyal customers, it has plenty of pricing power, and its CEO has a knack for setting realistic goals and achieving them. Investors should consider picking up some shares if its stock pulls back following its fourth-quarter report on Thursday, Dec. 8.
