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lululemon Hits a 52-Week High: Will the Uptrend Continue?

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lululemon athletica inc. (LULU - Free Report) is witnessing a bullish run on the bourses. In fact, the stock hit a new 52-week high of $220 on Nov 22, before closing the session a tad lower at $219. The company is benefitting from the Power of Three strategic plan and consistent comps growth on digital expansion.

Notably, this Zacks Rank #3 (Hold) company has gained 20.6% in the past three months, outperforming the Zacks Consumer Discretionary sector’s rise of 7.3% and the Zacks Textile - Apparel industry’s growth of 10.5%.

 

That said, let’s take a closer look at the factors driving the stock.

A Brief Introspection

Lululemon is on track with its Power of Three strategic plan, which aims at doubling sales in the men’s and digital categories, and quadrupling sales in the international unit by 2023. This five-year plan focuses on three core areas — product innovation, augmenting omni-guest experience and market expansion.

Backed by such well-chalked-out efforts, the company is witnessing positive consumer response. Solid momentum in the women’s and men’s businesses continued in the fiscal second quarter, with comps growth of more than 13% and 27%, respectively. Management is also focusing on its North America business, which has been performing well for a while now. 

Management expects some annual benefits from this abovementioned plan, which includes modest gross margin improvement, slight reduction in SG&A costs, operating growth in excess of sales growth, earnings per share growth equal to or more than operating income growth, and capital expenditure of about 6-8% of sales. Also, it envisions sales growth in the low-teens in the next five years. 

With respect to omni-channel guests’ experience, the company has tested its loyalty program. The company has also expanded its online-only size and color options for men and women. These efforts have driven digital comps to the tune of 31% at constant dollar during the fiscal second quarter. Additionally, total comps, including comparable store sales and direct-to-consumer (DTC) sales, advanced 15% and rose 17% at constant dollars.

lululemon also boasts a strong product portfolio. The company has launched assortments in the core men’s and women’s categories and has also tested its self-care category, which includes deodorants, moisturizers and shampoo. The company has seen encouraging consumer response in the tests of its self-care products. Also, the company intends to launch athleisure products and expand other items such as office luggage and travel bags.

Along with these, the company is poised to boost international revenues through its expansion plans in China, Asia-Pacific and EMEA, which are key growth regions. Of these, the company is set to see impressive growth in China in fiscal 2019.

Bottom Line

Despite the above-mentioned initiatives, escalated tariffs and additional air freight costs on products are likely to dent the company’s gross margin in fiscal 2019. Also, unfavorable currency movements are a bother. Nevertheless, we expect the company’s prospects to boost growth and help maintain its stellar show. 

Looking for Solid Retail Picks? Check These

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Burlington Stores (BURL - Free Report) has a long-term earnings growth of 15.7% and carries a Zacks Rank #2 (Buy). 

Dollar General (DG - Free Report) has a long-term earnings growth of 8% and holds a Zacks Rank #2.

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