Shares of lululemon athletica inc. (LULU - Free Report) have displayed a spectacular show in the past year and emerged as an attractive investment option. Notably, the stock has gained a whopping 155.8% in a year, marking an outperformance compared with the industry’s growth of 37.7%.
We believe, there is still momentum left in the stock of this Vancouver-based athletic apparel company, based on the progress of its strategy for 2020, with a stringent focus on digital and international growth. Further, its leadership in the booming athleisure market is providing support. This is further evident from this Zacks Rank #1 (Strong Buy) company’s long-term impressive earnings growth rate of 16.2% and a VGM Score of B.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Looking more closely at the stocks in the broader industry, we note that lululemon is quite ahead of the peer group. Notably, stocks such as Columbia Sportswear (COLM - Free Report) , Michael Kors (KORS - Free Report) and Ralph Lauren (RL - Free Report) have witnessed gains of 55%, 68.9% and 44.5%, respectively, in a year. Let’s delve deeper and find out the reasons that are pushing lululemon ahead of its peers.
Strategy for 2020 on Track
lululemon is well on track with its strategy for 2020, by which it aims to double its revenues to about $4 billion and more than double its earnings. To achieve these targets, management outlined four distinct growth strategies, including product innovation, building the store fleet in North America, expanding digital business and international expansion.
E-commerce Drives Sales
With more customers turning to online portals, lululemon expects this channel to account for over one-third of its sales by 2020. The company is strongly focused on enhancing the e-commerce retailing channel, investing in the innovation of product categories and bringing improvements to its website. Notably, its digital business continues to gain from the site re-launch in the third quarter of fiscal 2017, delivering a double-digit increase in conversion rate in second-quarter fiscal 2018.
Driven by the ongoing strength in e-commerce, traffic at the company’s site improved more than 20%. This led e-commerce comps to surge 48% (an increase of 47% in constant dollars) in the fiscal second quarter.
Further, the expansion of omni-channel capabilities complements its digital strategies. As part of this, the company allows catering in-store demand from e-commerce inventory. Moreover, its ‘ship from store’ capability is gaining traction. It is also on track to roll out the ‘buy-online pick-up in-store’ functionality in the second half of fiscal 2018.
Potential for International Expansion
With regard to international expansion, the company remains keen on expanding store base overseas and expects its international business, including e-commerce, to account for nearly 20-25% of the total sales by 2020. It remains focused on expanding operations outside the United States and Canada, particularly in the underpenetrated European and Asian markets.
As part of its expansion in Asia, the company has introduced WeChat store in China in the fiscal second quarter, and is on track to launch e-commerce sites in Korea and Japan in late fiscal 2018. In Europe, its brand is resonating well with customers while it opened the first store in Sweden. The company also attracted guests in London, with another successful Sweatlife festival. Overall, it plans to expand the international base by opening 20-25 international stores in fiscal 2018.
Backed by these efforts, the company looks well-positioned for persistent growth and improved profitability over the next five years.
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