Glow Up And Daydrift Will Expand Global Reach

Key Takeaways

• Lululemon's focus on product innovation and global brand awareness may drive revenue growth and expand their market presence.
  
• Strategic international expansion and enhanced store formats could boost revenue, while technology investments may improve net margins and customer loyalty.
  
• Economic uncertainty, inflation, and foreign exchange challenges pose risks to revenue and earnings growth despite reliance on innovative products and sales volumes.

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.

• Lululemon is focusing on product innovation, including new technical apparel franchises such as Glow Up and Daydrift, which could drive revenue growth as they expand offerings and increase guest acquisition.
  
• The company plans to enhance its brand awareness globally through community-based activations and partnerships with high-profile ambassadors, potentially increasing revenue and market share in underpenetrated markets.
  
• Lululemon's international expansion strategy, especially in promising markets like China and other new countries, is expected to significantly boost revenue, as these regions are still in a growth phase with untapped potential.
  
• The ongoing enhancement and optimization of store formats, both in mature and new markets, can improve customer engagement and increase sales per square foot, ultimately enhancing earnings.
  
• Continued investment in technology and data analytics aims to streamline operations and improve customer experiences, which could lead to improved net margins through operational efficiencies and increased customer loyalty.

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 8.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 17.1% today to 16.2% in 3 years time.
• The bullish analysts expect earnings to reach $2.2 billion (and earnings per share of $19.64) by about April 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 28.6x on those 2028 earnings, up from 17.4x today. This future PE is greater than the current PE for the US Luxury industry at 15.1x.
• Analysts expect the number of shares outstanding to decline by 3.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

lululemon athletica Future Earnings Per Share Growth

Risks

• The economic and political uncertainty, especially in the U.S., along with consumer caution due to inflation concerns, could lead to reduced consumer spending, impacting revenues.
  
• The reliance on constantly introducing new and innovative products places significant pressure on maintaining high sales volumes to support revenue growth.
  
• Exchange rate fluctuations are expected to negatively impact revenue growth by one percentage point for the year, representing a risk to earnings due to foreign exchange headwinds.
  
• U.S. revenue growth is anticipated to be only modestly positive, with the potential impact of a choppy retail environment suppressing expected gains and affecting overall revenue growth.
  
• The guidance includes a projected decrease in operating margin driven by deleverage on fixed costs, foreign exchange challenges, and increased tariffs relating to China and Mexico, which could limit earnings growth.

Valuation

• The assumed bullish price target for lululemon athletica is $464.68, which represents two standard deviations above the consensus price target of $334.71. 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 $194.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $13.5 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 7.6%.
• Given the current share price of $261.71, the bullish analyst price target of $464.68 is 43.7% 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.