Should I Buy Lululemon Stock?

The luxury sports apparel brand has experienced impressive online sales since the pandemic started, despite a slump in overall purchases.

Lululemon (NASDAQ: LULU) is a popular athleisure apparel brand that has been recording impressive growth, particularly with its online sales. On June 29, the company announced it will acquire Mirror for $500 million, a leading in-home fitness platform that has live and on-demand classes. This is a leap in the right direction for Lululemon which already has a strong community for its customers, with free fitness classes in-store and out.

The bull case for Lululemon 

The company has been pushing its focus to its e-commerce segment since the coronavirus hit. At its recent earnings call, Lululemon’s online purchases went up by 70%, double that of the 35% increase at the same time last year. Its online sales were $352 million for the quarter, making up 54% of the company’s total revenue, compared to $209.8 million the year prior. The company also experienced a 40% increase in traffic to its website, thanks to investments in the digital marketing arena and improvements to its e-commerce experience. This shows the company is adjusting to the ongoing pandemic and will continue to shift its focus to the online space to keep making sales.

The recent purchase of Mirror comes at a time when people are needing good quality at-home workouts. Gyms may be reopening, but exercising in the safety of your own home will likely be the first choice for many people. Mirror is often seen as a good alternative to Peloton’s (NASDAQ: PTON) popular, but rather clunky, workout machines. This is a great move for Lululemon and a way to keep its fitness community connected at a time when in-person classes are becoming fewer.

The future is looking bright for the company with analysts predicting international revenue to hit $1 billion by 2023. Lululemon’s balance sheet is also looking good, with $820 million in cash and equivalents.

The bear case for Lululemon

Lululemon had a grim first-quarter, with its earnings down by a huge 70%. Overall, its total revenue fell by 17% to $651.96 million and it did not report the same-store sales because of temporary closures. While this isn’t the best outcome, it is the same situation many retailers are finding themselves in, due to the coronavirus outbreak — and still not as bad as Under Armour (NYSE: UAA).

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The company’s biggest competitor is Nike (NYSE: NKE), which also took a hit from the closure of its stores. The sports giant reported a 79% increase in its digital sales, 9 percentage points more than Lululemon for the quarter. While Nike is beating Lululemon in the e-commerce space, its quarterly revenue dropped by 38%. However, at this moment Lululemon cannot hope to match the brand reach and revenue generation that Nike does, but it is moving in the right direction.

So, should I buy Lululemon stock?

People are still wanting to exercise despite the coronavirus pandemic, or simply be in comfortable clothing while they work from home. Lululemon is proving its marketing and focus on its e-commerce sales is working and is a strong base for future revenue. The company is also showing steady growth overseas, with revenue outside of the U.S. and Canada up from $245.6 million in 2017 to $457.8 million in 2019. The future looks bright for Lululemon and is a good stock to purchase that will likely see long-term growth. 

Quickfire round: 

Who is Lululemon owned by?

Canadian billionaire Chip Wilson founded the company in 1998, but Lululemon is now run by CEO Calvin MacDonald who took over the company in 2018.

Is Lululemon made in China? 

The sportswear brand manufactures its products in a number of different countries, including China.  

Does lululemon stock pay dividends?

The stock does not currently pay dividends

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.