Lynch Picks: Buy Lululemon (LULU)
The well-known athletic brand is still doing well despite the challenging macroeconomic climate.
Lululemon's comparable sales increased by 22%, and overall revenue increased by 28% to $1.86 billion for Lululemon in the third quarter, beating projections of $1.81 billion. Although the garment company's foreign revenue increased by 41%, there were some challenges on the cost front, as its gross margin dropped to 55.9%.
$LULU increased the size of its direct-to-consumer (DTC) channel by building new physical locations and increasing online sales. It had 623 stores at the end of the third quarter as opposed to 552 at the same time last year. In the third quarter, digital sales increased from 40% to 41% of total revenue, representing a 46% three-year CAGR increase.
By increasing its direct-to-consumer (DTC) channel, the company may compete with other major online retailers and lessen its reliance on third-party resellers (and the risk of brand dilution due to discounts). This increases its advantage over other well-known athletic clothing companies like Nike and Adidas.
Lululemon CEO Calvin McDonald stated on the third-quarter conference call that the company witnessed a "good start to our Power of Three x2 growth strategy" and that he was "confident" in both the company's "near- and long-term plans." McDonald added that he was "comfortable" with the inflationary pressures and that Lululemon was able to "continue to sell our product at regular pricing" despite rival stores "now significantly discounting."
Although investors should refrain from taking any management team's financial ambitions at face value, I would be shocked if Lululemon didn't achieve its objectives. The company is thriving despite a challenging operating climate over the past few years, including the coronavirus epidemic, rising inflation, and a looming recession. Despite these challenges, Lululemon continues to make tremendous progress, providing the market with a lot of assurance as we move forward.
Source: Yahoo Finance