Lululemon (NASDAQ:LULU) is a Canadian athletic apparel brand that has become a household name in recent years and boasts nearly 500 stores internationally and a strong e-commerce presence. The company originally specialized in yoga-related clothing but has now expanded to a full range of sports clothing, including accessories. Lululemon is benefitting from a trend shift towards “athleisure”, a combination of athletics and leisure clothing, as more people look for comfortable clothing for both staying at home and for a more casual return to the office.  

The share price has grown significantly, hand in hand with the international expansion of the firm. The stock was trading at ~$110 at the start of 2019, and is now at all-time highs of $425 and a market capitalisation of ~$50 billion, thanks to the strong financial results despite the impact of COVID on store closures.

Huge Q2 earnings

Lululemon stock jumped 10.5% higher on Thursday alone, as Q2 financial results smashed the estimates of Wall Street analysts, and company management raised their forecast for full-year earnings.
– Earnings per share came in at $1.65 vs. $1.19 expected
– Revenue was $1.45 billion vs. $1.34 expected , up from $902 million in Q2 20
– Net income was $208 million, up from $86 million in Q2 20

The strong financial performance and execution by the management team has resulted in Wall Street analysts raising their price target even further, despite the recent record high. Key banks such as JP Morgan are now forecasting a 12 month target price of 500 for this stock.

Mirror

In 2020, Lululemon bought at-home fitness startup, Mirror. Since then it has set up dedicated “mini-shops” for Mirror within 150 of the Lululemon stories, and aiming for 200 by year end. This marks an exciting product expansion and diversifying contributor to the group revenue. Mirror offers cardio, yoga, and boxing classes, and the goal is to compete against Peloton. With the future of ‘returning to work’ still uncertain and looking increasingly more hybrid, there is a growing demand for flexible workout offerings.

We believe Lululemon has the fundamental and technical momentum for the stock price to increase even further. This looks like a key stock to hold in your portfolio, as the company continues to outperform and build their strong position in the sports apparel and fitness industry.

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