Lululemon Continues to Defy Gravity

Online sales helped saved the company this year. Will its retail magic make up for lost opportunity?

Andrew Willis 22 June, 2020 | 1:39AM
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Editor's note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.

Lululemon was one of the first stocks I ever followed. The BC-based company jumped onto the Canadian clothing scene with pizzazz and creativity, and has come to symbolize healthy and positive lifestyles. Now, I want to know – will the good vibes last?

It’s currently a one-star stock. The company developed such a following that support for the price of the stock began to disconnect from the fundamentals, and it flew back from a brief dip in March to hit record levels –  and now it’s more than TWICE our fair value estimates.

The quality of the materials that Lululemon uses and the strength of the brand see shoppers willing to come into the store, even in a pandemic, says equity analyst David Swartz. And while billions of dollars have left physical retail every year, revenue from the in-store Lululemon experience has doubled from 2013 to 2019.

Lululemon’s control of their corporate locations helps it deliver and maintain a premium customer experience that contributes to a narrow moat rating. But even Lululemon’s store superiority might not be enough to sustain its sky-high stock price.

We still estimate the company will lose a quarter of its revenue this year, but we also estimate growth in e-commerce to increase by half this year, offsetting that loss.

E-commerce aside, Lululemon will need to further embrace its online presence and grow overseas to thrive. We’ll see if a company known for its ability to think-outside-of-the-box with apparel does it again.

For Morningstar, I’m Andrew Willis.


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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Lululemon Athletica Inc322.98 USD-1.25Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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