Time To Buy Lululemon Again
Long Only, Growth, Long-Term Horizon
Seeking Alpha Analyst Since 2020
I am a personal occasional investor interested in long term fundamental investing. I am most excited by stocks that are misunderstood while exhibiting potential for material re-rating.
Summary
- I sold Lululemon at US$220 in March because store closure presented significant revenue pressure. Now I believe this argument is no longer true and I turn bullish again.
- The worst is behind with revenue growth recovered to 2% YoY in 2Q20. E-commerce grew by 155% YoY in 2Q20, powerful enough to offset store weakness.
- Secular tailwind of fitness and athleisure has grown stronger. Fitness awareness grew post covid-19. Prolonged work from home routines accelerated customers adoption of comfort clothing.
- Mirror acquisition positions (LULU) for home fitness relevance asthe "mirror" could be the future way of exercising, shopping andcommunity engagement. It could be part of the loyalty program.
- Only 17.6% of revenue is generated outside North America as of 2Q20. International growth runway is huge, especially China.
I sold Lululemon at US$220 in March because store closure presented significant revenue pressure. Now I believe this argument is no longer true and I turn bullish again with stocks down 26% from US$398 to US$295.
The worst is behind with revenue growth recovered to 2% YoY in 2Q20. E-commerce grew by 155% YoY in 2Q20, powerful enough to offset store weakness, and it accounted for 61.4% of revenue now while physical store contribution shrunk to 31.8% of revenue. This proves Lululemon can operate even with stores closed under sustained lockdown. Launch of personal shopping service, which helps customers to discover clothes personalized for them online (a space Stitch Fix (SFIX) is leading), is positioning Lululemon as an e-commerce company. In case of faster recovery from COVID-19, physical stores sales improvement represents an upside opportunity.
Secular tailwind of fitness and athleisure has grown stronger. Fitness awareness grew post covid-19. Prolonged work from home routines accelerated customers adoption of comfort clothing. The Office Travel Commute (OTC) athleisure segment of Lululemon is poised to disrupt every dressing occasion faster than ever.
Time to factor in the new growth initiatives from connected fitness / loyalty membership programme. Mirror acquisition positions (LULU) for home fitness relevance as the "mirror" could be the future way of exercising, shopping and community engagement. It could also be part of the loyalty program, which turns loyal customer spending into recurring revenue stream while offering a new touch point for customer acquisition.
Only 17.6% of revenue is generated outside North America as of 2Q20. International growth runway is huge, especially China.
Analyst's Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in LULU over the next 72 hours.
I am long SFIX
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