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Why lululemon (LULU) is Poised for Splendid Returns in 2020?

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lululemon athletica inc. (LULU - Free Report) has been a star performer throughout 2019, with the stock gaining as much as 81.2% in a year’s time. Moreover, the company looks well poised for growth in 2020, given sound fundamentals and strategic endeavors. Notably, the Vancouver, Canada-based company is benefiting from solid progress on the Power of Three strategic plan, which aims at doubling sales in the men’s and digital categories, and quadrupling revenues in the international unit by 2023. Its focus on product innovation has also been favoring the yoga-inspired athletic apparel company.

lululemon is likely to witness strong momentum across the business, while executing growth strategies in the future. Despite the anticipated impacts of tariff increases and airfreight costs, management provided a solid view for the fourth quarter and raised its guidance for fiscal 2019.

This Zacks Rank #2 (Buy) stock’s growth has surpassed the industry’s gain of 30.3% in the past year. Also, the stock has comfortably outperformed the Consumer Discretionary sector’s rally of 24.4% and the S&P 500’s growth of 26.3% in the same period.

 


Additionally, the company’s long-term earnings growth rate of 17.6% reflects its inherent strength. Moreover, the Zacks Consensus Estimate for fiscal 2020 top and bottom lines indicates improvements of 14.6% and 16.8%, respectively, from the year-ago reported figures.

Growth Endeavors

lululemon is on track with the Power of Three strategic plan. This five-year plan focuses on three core objectives — product innovation, augmenting omni-guest experiences and market expansion. Going forward, the company remains optimistic about the innovations that it plans to bring in its assortments for both men and women. Management plans to keep investing in strategies to maintain customer footfall, including efforts to augment store base and enhancing shopping experience.

Driven by these plans, the company had earlier anticipated to deliver sales growth in low teens in the next five years. lululemon also expects certain annual benefits from this new plan. These include 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 to be 6-8% of sales.

Apart from launching new assortments in the core men and women’s categories, its product innovation plan also focuses on testing new genres. The company has identified several new areas and it can test the same to offer innovative solutions to guests. A category wherein the company is carrying out tests is the self-care, which includes products such as deodorants, moisturizers and shampoo. Additionally, it intends to tap into customers’ growing preference for athleisure by launching new product lines related to activities like yoga, running and training. Expansion of office luggage and travel bags, and continued partnerships are some of the other product-related initiatives.

As clear from the strategic plan, the company is keen on enhancing omni-channel guests’ experience. It is looking for new and exciting ways to connect with customers. To this end, it is also testing its loyalty program. Further, the company has expanded online only size and color offerings for both men and women, which is a testament to its efforts to attract digital guests. Moreover, it is gaining from the buy online pickup in-store capability in North America. The company has also improved mobile point-of-sale capabilities to help guests complete their purchases from anywhere in the store.

The above-mentioned factors suggest that there are plenty of reasons to be optimistic about the stock in 2020.

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