Lululemon used to be a niche player, now some think it could be the next Nike

For six years, between 2011 and 2017, the shares of Lululemon Athletica Inc. seemed depleted. The yogawear company was already an incredible success for investors, who supported it since its US $ 14 IPO in 2007, but further growth was a concern.

The upper end of the US $ 40-US $ 65 range, which was mostly traded during that time, seemed like the proverbial ceiling for a company that later looked like a niche retailer that predominantly attracted a genre. When he was not worried that his main yoga pants were transparent, it was news due to the departure of the open founder Chip Wilson.

Fast forward to early 2020, and the image has changed dramatically.

It has become standard on Wall Street to listen to Lululemon mentioned on the same breath as powerful brands like Nike and Adidas

After aggressively pursuing male demography and expansion to Europe and China, the Vancouver-based company has rekindled its growth prospects. The price of its shares has followed suit, quadrupling to flirt with the level of US $ 250 per share.

A Cowen analyst even recently suggested that the retailer had the opportunity to become another Nike Inc., the dominant athletic brand in the world, something that would have once been ridiculous.

But UBS analyst Jay Sole said it has become standard on Wall Street to listen to Lululemon mentioned on the same breath as powerful brands like Nike and Adidas AG, even if consumers have not yet made that leap.

“Brands like Nike and Adidas are big brands, global brands, but they are considered brands of men who make products for women,” he said. “Lululemon has the distinction of being a female brand that manufactures products for men. People doubted that they could really grow their men’s business, but they have done it. “

Nike is targeting female shoppers by launching sports bras, yoga pants and a sneaker campaign.

Courtesy of Sporting Life.

While Nike is targeting women buying sports bras, yoga pants and a sneaker campaign, Lululemon is doing the opposite, pushing its own line of jackets, running pants, polo shirts and men’s underwear. By taking a page from the books of Nike and Adidas, they even brought former Superbowl MVP Nick Foles as the line’s ambassador.

Lululemon is driving its own line of jackets, running pants, polo shirts and men’s underwear.


An easier option was on the table: Wilson launched a public campaign at a time to try to pressure the company to acquire Under Armor Inc., another emerging athletic brand that had its own problems, but Lululemon chose to introduce a male line organically. The measure has already been successful, according to the company. The income generated by men’s clothing grew 38% only during the third quarter of the retailer. Annually, Lululemon has said that men’s clothing sales are on their way to reaching one billion dollars by 2020.

The expansion has worked, Sole said, due to its gradual implementation. Lululemon did not betray his central identity by immediately abandoning what made it popular. The attractiveness of women’s stores is actually helping to increase men’s sales, Sole said, as approximately half of the men’s products sold are bought by women.

“If they tried to suddenly change their assortment to sell some yoga pants, but half would go to men’s running clothes, it would seem really unrealistic,” Sole said.

“They have been very careful about how they have expanded their brand definition and what it means.”

Still, Lululemon is far from satisfied and is already looking to set the bar even higher. The executive president, Calvin McDonald, unveiled a five-year plan in April that aims to double digital and men’s sales, achieve low double-digit annual growth in its core business and quadruple its international revenues by 2023.

Between the fourth quarter of Lululemon’s 2018 and its third quarter of 2019, the company opened 57 stores, with a world total of 479.

We believe that we are only scratching the surface of our potential within China and Asia

Lululemon CEO Calvin McDonald

During the company’s earnings call in the third quarter, McDonald said Lululemon’s total revenue from international markets increased by 35 percent and noted that the company opened a second store in Paris and entered Oslo for the first time.

As for China and Hong Kong, Lululemon already has 40 locations and described the potential for even more.

“We believe that we are only scratching the surface of our potential within China and Asia in general,” McDonald said during the call.

A customer looks at sportswear inside a Lululemon Athletica Inc. store at the International Finance Center in Hong Kong.

Xaume Olleros / Bloomberg

Jane Hali, executive director of the investment research firm Jane Hali & Associates, said Lululemon’s global appeal comes from the fact that active clothing is becoming fashionable. With demand driving its global growth, Lululemon’s potential is unlimited, he said.

“The Chinese love the brand, the British love the brand … they have taken over London, now they are in Paris and who would think that a Parisian way of looking would be active, but everyone is in well-being.” said. “There is no limit at this time due to the growth potential in these countries, with China being the largest.

“China alone can (put it in competition with Nike).”

While he already enjoyed a stellar 2019, Lululemon seems ready to continue his momentum this year. On Monday, it announced that it would increase the financial orientation for its next fourth quarter after better-than-expected sales. The stock rose again, earning an additional US $ 11 to move to US $ 245.18. Now with a value close to US $ 32 billion, it still has land to compensate Nike and Adidas, which have respective market limits of US $ 127 billion and $ 70 billion, respectively.

The action has been one of R.N.’s favorites. Richard Croft, investment director of Croft Financial Group, for years.

Sales at the same Lululemon store remain strong, he said, while his presence in China is giving him a great lead.

The company will have to exceed expectations to pave the way for greater upward movement, Croft said, although he has proven himself able to do so several times in the past.

Croft stopped, his line of thought interrupted.

“I just sold,” he said. “I can go buy it right now.”

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