Lululemon (LULU)

Athletic apparel retailer Lululemon (NASDAQ:LULU) announced better-than-expected revenue in Q4 CY2024, with sales up 12.7% year on year to $3.61 billion. On the other hand, next quarter’s revenue guidance of $2.35 billion was less impressive, coming in 2.1% below analysts’ estimates. Its GAAP profit of $6.14 per share was 4.6% above analysts’ consensus estimates.

Company Overview

Originally serving yogis and hockey players, Lululemon (NASDAQ:LULU) is a designer, distributor, and retailer of athletic apparel for men and women.

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Competitors in the athletic apparel industry include Nike (NYSE:NKE), Under Armour (NYSE:UA), and Columbia Sportswear (NASDAQ:COLM).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $10.59 billion in revenue over the past 12 months, Lululemon is a mid-sized retailer, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, Lululemon grew its sales at an exceptional 21.6% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new stores and increased sales at existing, established locations.

This quarter, Lululemon reported year-on-year revenue growth of 12.7%, and its $3.61 billion of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 6.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 6.8% over the next 12 months, a deceleration versus the last five years. We still think its growth trajectory is attractive given its scale and suggests the market is forecasting success for its products.

Number of Stores

Lululemon sported 767 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 9.6% annual growth, among the fastest in the consumer retail sector. This gives it a chance to become a large, scaled business over time.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

Same-Store Sales

A company's store base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales is an industry measure of whether revenue is growing at those existing stores and is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Lululemon has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 8.1%. This performance suggests its rollout of new stores is beneficial for shareholders. We like this backdrop because it gives Lululemon multiple ways to win: revenue growth can come from new stores, e-commerce, or increased foot traffic and higher sales per customer at existing locations.

In the latest quarter, Lululemon’s same-store sales rose 3% year on year. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Lululemon can reaccelerate growth.

Lululemon has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 58.8% gross margin over the last two years. That means Lululemon only paid its suppliers $41.21 for every $100 in revenue.

Lululemon’s gross profit margin came in at 60.4% this quarter, up 1 percentage points year on year and exceeding analysts’ estimates by 1.2%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting it strives to keep prices low for customers and has stable input costs (such as labor and freight expenses to transport goods).

Operating margin is a key profitability metric because it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Lululemon has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 23%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Lululemon’s operating margin rose by 1.5 percentage points over the last year, as its sales growth gave it operating leverage.

In Q4, Lululemon generated an operating profit margin of 28.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Lululemon’s EPS grew at a solid 24.4% compounded annual growth rate over the last five years, higher than its 21.6% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

In Q4, Lululemon reported EPS at $6.14, up from $5.29 in the same quarter last year. This print beat analysts’ estimates by 4.6%. Over the next 12 months, Wall Street expects Lululemon’s full-year EPS of $14.70 to grow 5.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Lululemon has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 12.4% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Lululemon’s five-year average ROIC was 48.1%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Lululemon is a profitable, well-capitalized company with $1.98 billion of cash and $1.58 billion of debt on its balance sheet. This $408.5 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was good to see Lululemon narrowly top analysts’ gross margin expectations this quarter. We were also happy its revenue and EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue and EPS guidance fell short, making this a weaker quarter. The stock traded down 6.8% to $318.35 immediately following the results.

Updated: May 21, 2025 at 10:10 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Lululemon, you should also grasp the company’s longer-term business quality and valuation.

Lululemon is an amazing business ranking highly on our list. For starters, its revenue growth was exceptional over the last five years. On top of that, its marvelous same-store sales growth is on another level, and its new store openings have increased its brand equity.

Lululemon’s P/E ratio based on the next 12 months is 20.7x. Analyzing the consumer retail landscape today, Lululemon’s positive attributes shine bright. We think it’s one of the best businesses in our coverage and like the stock at this price.

Wall Street analysts have a consensus one-year price target of $328.32 on the company (compared to the current share price of $317.74), implying they see 3.3% upside in buying Lululemon in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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