Lululemon may attain profit levels comparable to Nike, according to analysts at Cowen.
Lululemon Athletica, the popular activewear brand known for its high-quality yoga pants and workout gear, is eyeing significant growth in the coming years. The company's focus areas include expanding its menswear line and increasing international sales.
The brand's growth is attributed to a combination of consistent innovation, a luxury-like brand positioning, and a strong community-based model. Lululemon aims to match Nike and Adidas in women's apparel sales, with a target of $4.3 billion.
In the men's apparel segment, Lululemon plans to double its sales by 2023. The company's fabric innovation is seen as a 'massive addressable market.' Lululemon's executives also see growth potential in North America and abroad.
Cowen & Co analysts identify product innovation, international expansion, digital growth, and strong brand loyalty as key drivers for Lululemon's potential future growth. They suggest possible new product categories, membership services, and an experiential-based omni-quest approach for Lululemon.
The new store format for Lululemon could offer events and services, making up 10% of its footprint. This experiential store format could be introduced to enhance the customer experience and foster a stronger sense of community.
Lululemon's comp sales are expected to increase by 15.2% in the third quarter, and the brand could generate $1 billion in annual cash flow. Cowen analysts compare Lululemon's growth, durability, and ROIC profile to that of Nike. They view Lululemon as a 'dual gender brand with unmatched loyalty.'
Despite Lululemon's impressive growth prospects, it's important to note that its revenues are significantly smaller than Nike's, with Nike making over $39 billion in the past fiscal year. However, Lululemon's internet search hits have increased by 31% year over year on a quarterly basis, indicating a growing interest in the brand.
With a projected return-on-investment rate of 44%, Lululemon Athletica has the potential to reach a market cap of $40 billion, making it an attractive investment opportunity for many. The company's focus on innovation, community, and expansion positions it well for continued growth in the competitive activewear market.
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