New Product Lines And Store Expansion Will Fuel Global Momentum

Key Takeaways

• Global expansion and product innovation targets high-growth markets to drive revenue, enhance brand awareness, and improve customer acquisition and retention.
  
• Physical store expansion and community-based activations aim to boost market presence, guest loyalty, and sustain long-term growth despite macroeconomic challenges.
  
• Consumer caution, exchange risks, and reliance on product innovation pose threats to sales growth, margins, and earnings amid international expansion and macroeconomic uncertainties.

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 increasing brand awareness globally, with specific strategies targeting high-growth potential markets like China, France, Germany, and Japan, which could significantly drive future revenue growth.
  
• The company's innovative new product launches, such as the Glow Up and Daydrift lines, are designed to enhance guest acquisition and retention, thereby potentially boosting future earnings through increased product sales and higher average order value.
  
• Lululemon is planning to expand its physical presence by increasing square footage approximately 10% in 2025, with new store openings and optimizations. This expansion is likely to impact future revenue positively as it taps into both existing and new international markets.
  
• Continued investment in community-based brand activations and ambassador partnerships, aimed at building guest loyalty and attracting new guests, is expected to enhance Lululemon’s market differentiation and sustain long-term revenue growth.
  
• The company plans to mitigate macroeconomic challenges by maintaining robust product innovation and newness throughout the year, which is expected to support stable or improved gross margins by driving strong customer demand and loyalty.

lululemon athletica Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming lululemon athletica's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.8% today to 15.2% in 3 years time.
• Analysts expect earnings to reach $2.0 billion (and earnings per share of $17.46) by about August 2028, up from $1.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $1.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from 13.4x today. This future PE is lower than the current PE for the US Luxury industry at 20.1x.
• 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 8.02%, as per the Simply Wall St company report.

lululemon athletica Future Earnings Per Share Growth

Risks

• The dynamic macro environment has contributed to a more cautious consumer, leading to slower traffic across the industry in the U.S., which could suppress sales growth and ultimately impact revenue.
  
• Risks from foreign exchange and the impact of increased tariffs on imports from countries like China and Mexico are expected to negatively affect gross margins and operating margins by 60 basis points and 100 basis points, respectively.
  
• Forecasted modest revenue growth in the U.S. for 2025 suggests potential headwinds that may continue throughout the year, which could be due to macro factors or competitive pressures negatively impacting net revenue.
  
• The reliance on newness and product innovation to drive guest acquisition and retention may not yield consistent results in a more cautious consumer environment, potentially affecting sales revenue and earnings stability.
  
• Continued international expansion and square footage growth involve significant investment risks, especially if the geopolitical situation or macroeconomic conditions worsen, potentially affecting long-term revenue and capital expenditures.

Valuation

• The analysts have a consensus price target of $276.45 for lululemon athletica based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be $12.9 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 8.0%.
• Given the current share price of $202.53, the analyst price target of $276.45 is 26.7% 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.