Do Lululemon's Strategic Policies Position it for Growth?

Lululemon Athletica Inc. LULU is a leading name in the athletic apparel and accessories space, which has been elevated to a significant position in the market by its superior product designs and premium pricing. The company has an edge over competitors as its upscale pricing allows it to experiment with fabric and designs, enabling it to offer innovative products to customers.

Moreover, we remain impressed with Lululemon’s favorable demographic and secular trends that ensure top-line growth over the long term. Further, we believe that the company has an unmatched level of long-term growth opportunity in the industry based on its potential to expand square footage and enhance its business globally as well as through the expansion of its Ivivva model. Also, the company’s focus on eCommerce retailing channel, global expansion and investments in innovative product categories bode well.

Coming to expansion, we believe there is scope for Lululemon to expand across the U.S. as well as in the underpenetrated European and Asian markets. However, the Canadian market seems mature. Expanding its presence in Asia, Lululemon recently opened its second store in Singapore at Takashimaya shopping center, after its first store at Ion Mall received great response.

To expand further in the region, the company is all set to open its first Hong Kong store at IFC mall, which will be followed by a second store at Hysan Place located in the heart of Causeway Bay in Hong Kong during the third quarter. Also, the company is on track to inaugurate its first Dubai store in the third quarter.

Moreover, Lululemon seems to be in a solid position from earnings perspective as its surprise history narrates earnings beat in three of the trailing four quarters. This results in an average positive surprise of 7.8% over the last four quarters.

Lululemon had a robust start to fiscal 2015 as both top and bottom lines for the first quarter were ahead of its own guidance. The strong results were backed by improved traffic, constant developments in eCommerce, higher conversions and enhanced brand engagements against a backdrop of currency headwinds, unfavorable weather and port delays.

Following the solid results, the company raised its sales and earnings guidance for fiscal 2015 as it sees immense potential in its initiatives that include investing in innovations, product introductions and enhancing customer experience. However, it expects margins to remain under pressure.

Also, a soft macroeconomic environment and rising competition may dent this Zacks Rank #3 (Hold) company’s performance.

Zacks Rank

Some better-ranked stocks in the textile-apparel industry include Columbia Sportswear Company COLM, Guess' Inc. GES and Perry Ellis International Inc. PERY, all carrying a Zacks Rank #1 (Strong Buy).

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