Investing

Lululemon still has room to grow


The $18 billion market cap “athleisure” wear company Lululemon reported earnings and stunned Wall Street on 8/30/18. Posting incredible growth numbers, and still having room to grow is a key highlight of the company, evolving each and every quarter.

LULU earnings breakout

Looking over Lululemon and the Q2 earnings announcement, we find the following key points:

  • GAAP Earnings per share of $0.71, beating estimates by $0.22
  • Revenue of $723.5 million, beating estimates by a crazy high $388.35 million
  • Revenue growth was +24.5% year over year
  • Comparable sales up 20%
  • Comparable store sales jumped 10% (even with the majority of Lululemon stores inside of malls)
  • Direct to consumer net revenues jumped 48% (and if you take out the effects of an online warehouse sale, it actually jumped 66%)
  • Gross margin rose to 54.8%
  • Gross profit jumped 33% to $396.2 million
  • Full year revenues are expected to be $3.18 billion to $3.23 billion

Lululemon direct to consumers is key

One of the more interested highlights is that a form fitting clothing brand is showing excellent growth online and direct to consumer. (It’s worth noting D2C can include multi-channel sales like web / online / social media.)

Growth in Lululemons direct sales means that customers are being driven to a store to try the product on, and making a purchase / going online, and that offline initiatives are having a positive effect on online sales growth. Also, it could be a great indication that consumers are incredibly happy with the product, and are reordering it without the hassle of going to the store. If that doesn’t scream brand loyalty, then I don’t know what does.

Investing with yoga pants into Lululemon

While the company is more than yoga pants, they still provide a decent opportunity for investments. Looking at trendline support, $LULU has continued to increase in price, and with new earnings, and explosive growth, we could see even faster growth. Options would be a great way to play this growth, and long call options would be the way to go. A 15 MAR 2019 $175 CALL would cost you $8.55 a share to get into, for a contract price of $855. If the stock continues to climb, and hits $183 on 9 FEB 2019 (or above), total net return would be $349, a 40.8% return on your money when all said and done.

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