There are times when Lululemon Athletica Inc., the Vancouver sportswear company, seems to operate in a world of its own.
It’s one of them.
The pandemic and post-pandemic recovery has been difficult for retailers, and especially clothing merchants.
Clothing retailers’ brick-and-mortar stores were shuttered during the pandemic and they are now facing product shortages caused by continued supply chain disruptions.
And the higher costs that retailers are incurring due to historically high inflation and rising wages due to labor shortages cannot be fully passed on to consumers.
This would risk losing market share in one of the most competitive sectors of the economy.
Yet, in this hostile environment for retailers, Lululemon rolled out an ambitious plan to nearly double revenue in just four years.
Lululemon is already one of the biggest players in the “athleisure” market it helped create.
But with new product offerings and further international expansion, Lululemon is aiming for even greater dominance. Its plan is to increase its revenue to $12.5 billion (US) in 2026 from $6.3 billion last year.
(Lululemon reports are in US dollars, and all figures here are in US dollars.)
There’s reason to wonder if this supercharged growth plan is realistic. More on that later.
But consider Lululemon’s background first.
Lululemon has already promised outsized growth. And it delivered, doubling its revenue over the past three years, for example.
Yes, this period includes pandemic years.
Last year, Lululemon saw a 66% increase in profits to a record $975 million, on a 43% increase in sales to a record $6.3 billion.
This growth momentum continued this year.
In its most recent quarter, ending in June, Lululemon posted a 31% increase in profits, to $190 million, on a 32% increase in revenue, to $1.6 billion.
It’s this kind of growth that keeps Lululemon in its 24th year viewed as a growth stock, not a mature income stock.
Lululemon stock is valued at 39 times earnings, which values the company at around $40 billion.
It’s an assessment once reserved for tech darlings.
Then came this year’s Tech Wreck.
Lululemon retained its expensive valuation.
By contrast, shares of Apple Inc. and Facebook-owner Meta Platforms Inc. are now priced at just 25 and 14 times earnings, respectively.
It’s true that apparel retailer inventories have slumped lately on market fears of an impending recession in North America and Europe.
But the recent 26% drop in Lululemon stock value is modest compared to its peers, including Nike Inc. (down 36%), Abercrombie & Fitch Co. (down 52%), Gap Inc. ( down 55%) and Under Armor Inc. (down 59%).
The formula for success at Lululemon is its wide range of high-quality clothing sold at high prices in one of the most women-friendly retail environments.
Lululemon’s profit margin of 22.1% on its products is one of the highest in the apparel industry.
It is far ahead of Nike (15.7%), Under Armor (9.6%) and Adidas AG (8.9%).
Lululemon has been careful to expand its product line to ensure its new offerings are in line with the company’s wellness ethos.
This philosophy has been a key selling point for the company since its inception in 1998.
Despite its long association with women, Lululemon has been remarkably successful in branching out into menswear, which now accounts for around a third of total sales.
More recently, the company has expanded profitably into women’s footwear. And this year, it will start offering clothing for hiking, tennis and golf.
The goal is to make Lululemon the go-to brand for all fitness and sports equipment.
Getting there will not be easy.
Lululemon may struggle to deliver on its promise to quadruple revenue outside of North America. So far, it has suffered mixed results in its European expansion.
The company could also see its lofty profit margins shrink as it expands into shoes and other categories with lower margins than its $100+ yoga pants.
And the company’s new focus on footwear puts Lululemon in more direct competition with bigger rivals Nike and Adidas.
There is, however, a hedge against these potential setbacks. For two decades, Lululemon has consistently enjoyed one of the highest levels of brand loyalty in retail.
Which explains a recent analyst survey by FactSet that showed the market believes Lululemon will meet its 2026 growth target simply by increasing sales of its core products.
Anything more Lululemon can achieve with, say, its international expansion or its new digital fitness offerings will be a bonus.
That’s not shabby for a West Coast startup that’s long been known for its yoga outfits.