New Glow Up And Daydrift Lines Will Broaden Global Reach

Key Takeaways

• Continuous product innovation and strategic brand enhancements are expected to drive guest acquisition, repeat purchases, and future revenue growth.
  
• Geographical expansion and strategic marketing with ambassadors aim to boost brand visibility, consumer engagement, and support net margin and revenue growth.
  
• Economic and trade headwinds, along with strategic investments, could strain lululemon's profit margins and revenue growth amid a challenging retail outlook.

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 Athletica has a strong pipeline of product innovations, such as the Glow Up line and Daydrift trousers, along with strategic expansions like the no front seam legging for their Align franchise. This continuous innovation is expected to drive new guest acquisition and enhance repeat purchases, positively impacting future revenue growth.
  
• The company is leveraging its brand activations and community-based events to enhance unaided brand awareness in the U.S. and international markets, such as France, Germany, and China. This increased brand awareness is anticipated to boost long-term revenue as new customers are acquired globally.
  
• Lululemon plans to increase its store footprint by approximately 10% in 2025, including expansions into new markets such as Italy, Denmark, and Turkey under franchise models. This geographical expansion and increased store count are expected to support incremental revenue growth.
  
• The company is investing in strategic marketing campaigns and ambassador partnerships, with high-profile figures like Lewis Hamilton and Frances Tiafoe. This focus on marketing and brand ambassadors is designed to increase consumer engagement and drive higher average order values, supporting net margin growth through enhanced brand visibility.
  
• Lululemon's ongoing investment in technology and data analytics aims to optimize their operations and customer interactions, potentially increasing efficiencies and improving net margins by driving cost savings and enhancing data-driven decision-making capabilities.

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 17.1% today to 16.1% 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 25.6x on those 2028 earnings, up from 16.5x today. This future PE is greater than the current PE for the US Luxury industry at 12.9x.
• 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 uncertainty in the retail environment and consumers' increased concerns about inflation and the economy could lead to slower traffic and reduced revenue for lululemon in 2025.
  
• The decline in traffic in the U.S., which lululemon has experienced along with other industry players, represents a headwind that could adversely impact revenue growth in this key market.
  
• Increased tariffs related to China and Mexico are expected to create a headwind for lululemon's gross margins, potentially impacting overall profitability.
  
• Currency exchange headwinds are projected to negatively affect revenue growth and cause a decrease in gross margins, thus impacting net earnings.
  
• Planned SG&A investments, including increased marketing expenditures and strategic initiatives to support long-term growth, may lead to operating margin contraction if sales growth does not meet expectations.

Valuation

• The assumed bullish price target for lululemon athletica is $416.32, which represents one standard deviation above the consensus price target of $352.3. 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 $13.6 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 25.6x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $247.61, the bullish analyst price target of $416.32 is 40.5% 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.