Digital, International And Athleisure Trends Will Drive Opportunity

Key Takeaways

• Rapid international expansion, especially in China, and new product franchises are expected to accelerate growth and drive sustained margin improvements.
  
• Digital channel growth, premium brand positioning, and strategic capital allocation underpin scalability and strong long-term earnings potential.
  
• Mounting cost pressures, cautious consumer behavior, and rising competition threaten lululemon's growth, margins, and brand strength amid expanding international operations and elevated inventory risk.

Catalysts

Designs, distributes, and retails technical athletic apparel, footwear, and accessories for women and men under the lululemon brand in the United States, Canada, Mexico, China Mainland, Hong Kong, Taiwan, Macau, and internationally.

• Analysts broadly agree that international expansion, especially in Mainland China, will drive revenue growth, but this may be understated as lululemon's pace of store openings and remarkable double-digit comps suggest China could surpass North America in total revenue sooner than expected, providing massive upside to long-term revenue and operating leverage.
  
• Analyst consensus sees product innovation as a driver for retention and guest acquisition, yet the sellout success and imminent global rollout of new franchises like Daydrift and Align No Line suggest incremental, sustained boosts in average order value and margin as these become future core lines, leading to structural growth in earnings and gross margins.
  
• lululemon's data-driven omni-channel model is accelerating, with digital now contributing over 40 percent of total revenue, allowing for better cross-selling, personalization, and inventory efficiency, which should translate to higher gross margins and faster scalability worldwide.
  
• The ongoing shift in consumer lifestyle towards health, wellness, and athleisure is still in early innings globally, indicating lululemon's premium positioning and innovative technical fabrics will capture disproportionate wallet share gains as athleisure becomes entrenched globally, supporting above-market revenue growth and defensible gross margins.
  
• lululemon's strong free cash flow, $1.3 billion cash position, and aggressive share repurchase program signal potential for significant EPS upside via capital return, even as the company invests in international growth, advanced distribution, and sustainable materials ahead of competitors.

lululemon athletica Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on lululemon athletica compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming lululemon athletica's revenue will grow by 8.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 16.8% today to 16.2% in 3 years time.
• The bullish analysts expect earnings to reach $2.2 billion (and earnings per share of $20.0) by about August 2028, up from $1.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.6x on those 2028 earnings, up from 12.9x today. This future PE is greater than the current PE for the US Luxury industry at 19.4x.
• Analysts expect the number of shares outstanding to decline by 2.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.04%, as per the Simply Wall St company report.

lululemon athletica Future Earnings Per Share Growth

Risks

• Cautious consumer spending in the United States, particularly among middle-income shoppers, has led to lower store traffic and more intentional buying decisions, which could act as a long-term cap on revenue growth as the brand matures and discretionary spending remains under pressure.
  
• Increased tariffs on sourcing from China and other regions are expected to compress gross and operating margins by raising costs, and even with mitigation strategies like modest price increases and supply chain efficiencies, sustained margin pressure may limit long-term earnings growth.
  
• Intensifying promotional activity and competition within the U.S. activewear market, including from established giants and digitally native challengers, risk eroding lululemon's pricing power and market share, putting pressure on revenue growth and potentially leading to higher markdowns.
  
• Inventory growth ahead of sales, especially in an uncertain macroeconomic environment, raises the risk of increased markdowns and inventory write-downs, which could impact both gross margin and net income if demand softens or tastes shift away from core and seasonal product lines.
  
• As lululemon rapidly expands its international footprint-especially in China and Rest of World segments-there is increasing exposure to macroeconomic volatility, market saturation risk, and potential brand dilution if new stores or product extensions fail to resonate, which could lead to inconsistent revenue contribution and future earnings volatility.

Valuation

• The assumed bullish price target for lululemon athletica is $424.51, which represents two standard deviations above the consensus price target of $283.78. This valuation is based on what can be assumed as the expectations of lululemon athletica's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $500.0, and the most bearish reporting a price target of just $155.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $13.8 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 26.6x, assuming you use a discount rate of 8.0%.
• Given the current share price of $195.19, the bullish analyst price target of $424.51 is 54.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.