Lululemon’s (NASDAQ: LULU) stock hit a record high of $511.29 on Dec. 29, 2023. That marked a whopping 5,581% gain from its split-adjusted IPO price of $9 per share in 2007, and would have turned a $20,000 investment into $1.14 million. At the time, the bulls were dazzled by the athleisure brand’s rapid growth. But since it hit its all-time high, Lululemon’s stock has declined nearly 50% to about $260 today. It lost its luster as its growth cooled off and rising rates compressed its valuations. That was a steep pullback, but I believe it’s still a good buying opportunity for long-term investors.
This expansion strategy allowed Lululemon to tap into a broader market and increase its revenue. The company’s success was driven by several factors, including its strong brand image, its focus on quality and craftsmanship, and its commitment to customer service. These factors contributed to a loyal customer base and a positive brand perception.
Why did Lululemon’s stock stumble? A lot of that growth was driven by its two consecutive “Power of Three” plans. Both of those plans called for Lululemon to double its digital revenues, double its men’s revenues, and quadruple its international revenues over a five-year period. It launched its first Power of Three plan in 2019, and it achieved its three goals ahead of schedule even as the pandemic temporarily disrupted its brick-and-mortar sales in 2020. That’s why it kicked off a second Power of Three plan in 2022. But in fiscal 2023, Lululemon’s top-line growth decelerated significantly from its previous two years.
Metric FY 2021 FY 2022 FY 2023 Revenue Growth 42% 30% 19% Comparable Sales Growth N/A* 25% 13% Store Count 574 655 711 Adjusted Gross Margin 57.7% 56.2% 58.6% Adjusted Operating Margin 22% 22.1% 23.2% Adjusted EPS Growth 66% 29% 27% Data source: Lululemon. *Not reported due to COVID-19 closures in fiscal 2020. It blamed that slowdown on its sluggish U.S. sales, which offset its stronger overseas growth. Those challenges overshadowed its expanding gross and operating margins, which both improved as inflation eased and it trimmed its expenses. For fiscal 2024, Lululemon expects its revenue to rise 11% to 12% (or 10% to 11% after excluding an extra week this year) as its reported EPS grows 17% to 19%. That deceleration is disappointing, but CEO Calvin McDonald said the company still continued to “execute well” on its Power of Three goals during its latest conference call in June.
Lululemon’s stock has been on a steady upward trajectory, driven by several key factors. **1. Strong Brand Loyalty and Customer Base:** Lululemon has cultivated a strong brand image associated with high-quality, stylish, and functional athletic wear.
Lululemon’s insiders have also bought more shares than they sold over the past three months, and the company boosted its buyback authorization to $1.7 billion earlier this year. That warm sentiment suggests it’s a good time to buy Lululemon’s shares if you believe its business will eventually bounce back and stabilize as the macro environment improves. Don’t miss this second chance at a potentially lucrative opportunity Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this. On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $19,939 !* Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,912 !* Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $370,348!* Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon. See 3 “Double Down” stocks » *Stock Advisor returns as of August 22, 2024 Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
1 Growth Stock Down 50% to Buy Right Now was originally published by The Motley Fool
