What to expect from Lululemon's first investor day in five years
Lululemon Athletica Inc. (LULU.O) has given investors reasons to jump on board. Now it wants to give them reasons to stay.
The upscale yogawear maker is hosting its first analyst day since 2014 on Wednesday, when it’s expected to share its strategy for the next few years and disclose new financial targets. Key for investors will be how the Vancouver-based company plans to keep up momentum after reporting in March the fastest annual sales growth in six years and an upbeat outlook, which boosted the stock to a record last week. Here’s what to listen for during the event, which begins in New York at 9:30 a.m.:
Sales vs. Margins
Most analysts now see Lululemon on track to reach its current revenue goal -- US$4 billion by 2020 -- ahead of time. The forecast, which dates to 2016, will probably be eclipsed by a new 2023 target, they say.
- Bloomberg Intelligence’s Poonam Goyal sees a push into new markets, categories and fabrics lifting sales to a potential US$6 billion.
- Nomura Instinet’s Simeon Siegel says revenue could climb to US$6.5 billion but likely at the expense of margins. Lululemon may soon reach a size where growth for companies selling directly to customers in North America requires larger marketing budgets, extensive footwear lines or branching into wholesale.
- Investors want to figure out what Lululemon “becomes ‘when it grows up,”’ Siegel wrote in an April 17 note.
- “Is it the next Nike or simply one of the most productive retailers around,” Siegel wrote. “Our main questions focus on how large the opportunity is for revenues and margins, and whether the company is at a point where they will no longer be able to grow both.”
New Shoppers, New Products
- Lululemon has a loyal base of female customers, but the company describes the men’s market as one of its largest growth areas. The category is likely to reach a US$1 billion annual revenue target ahead of schedule. Male customers can already buy products as varied as boxers, running shorts or wind breakers.
- The company may share details on new product lines or partnerships following a capsule, or limited collection, with high-end e-commerce menswear site Mr. Porter.
What Bloomberg Intelligence Says
“Momentum in the men’s activewear business has helped Lululemon gain market share, but success depends on the company’s ability to brand itself as a lifestyle name with superior product quality and fit.”Poonam Goyal, senior retail analyst. Click here to read the research
- Yoga is core to the company’s image but outfits now range from sport bras to casual dresses as it cashes in on the “athleisure” trend that blurs boundaries between gym and work clothes. Plans for its "office, travel, commute” collections and new fabrics will be of particular interest.
- Lululemon may also share more details about an Amazon Prime-like loyalty plan it’s been testing in Denver and Edmonton, Alberta, as well as a new line of post-workout toiletries including a deodorant and a dry shampoo.
The World’s the Limit
- International sales will likely lead the next growth phase as Lululemon maxes out the number of stores in North America. So far, revenue from overseas, while growing quickly, accounts for just 11 per cent of the total, compared with an initial target for 20 per cent to 25 percent by 2020.
- Chief Executive Officer Calvin McDonald, who joined in August and led Sephora’s international expansion in his previous job, has announced plans to open 25 to 30 stores in international markets this year and is accelerating openings in China. Questions on Wednesday will include investments needed on the distribution side, how the brand will be managed during the expansion and how receptive consumers in Asia and Europe have become to a more casual “Street to Studio” look, RBC’s Kate Fitzsimons wrote in a Monday note.
- Digital sales will be key to the expansion. A revamped website helped e-commerce thrive last year and analysts await guidance on the online strategy’s next steps.