I first began to consider buying Lululemon stock in 2018. Back then, I noticed that women around me were spending a lot of money on them and wearing their apparel even when they were not working out.
This piqued my interest in Lululemon. I started to research about lululemon athletica inc. (Nasdaq: LULU) and following their company news.
In March 2020, the price dipped drastically and it was finally my chance to buy. I spent thousands of dollars on Lululemon – not on the clothes but in the Lululemon stock. Till date, I am really thankful my investment in Lululemon has gotten me a 68% return.
Recently, Channel News Asia interviewed me on 5 things to know before investing in the stock market rally. After reading the article, some wrote to me to ask me to recommend stocks for them.
I don’t think I am the best investor out there. Neither am I qualified to give advice on which stock to buy. I am only familiar with technology companies since I’ve been working in this field for a few years now. Warren Buffet says we should only invest in what we understand. So, I mostly purchased technology stocks since the beginning of my investing journey such as mainly Software-as-a-service and online marketplaces.
However, I thought it will be useful for others if I share my thought process behind purchasing one of the stocks I own. In this case, I decided to choose Lululemon.
Lululemon is currently the only non-tech company in my growth investing portfolio. The rest are all marketplaces and software-as-a-service. I chose this as a case study as I felt it would be a brand that many women can relate to. Ultimately, I would really like to see more women investing.
Please do not take this as a recommendation and do your due diligence before making a purchase. 🙂
Here are some reason why I chose to buy Lululemon’s stock
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1. Lululemon has a growing online revenue
As a company, Lululemon has enjoyed good growth over the past two years – more than 20% year-on-year. In FY Q4 2019, their operating income was $416.5 million, an increase of 26% compared to the fourth quarter of fiscal 2018. In FY Q4 2018, income from operations was $331.4 million, an increase of 29% compared to the fourth quarter of fiscal 2017.
Overall, Lululemon’s operating income was impacted due to Covid-19. Income fell in Q2 2020 compared to the Q2 2019. This was due to the fact that stores were closing.
Despite the COVID 19 pandemic, I still invested in them. This is because I was aware of her “power of three” strategy. One of which was to double its digital revenues by 2023.
Thus, it was no surprise that Lululemon could accelerate her growth during the Covid19 pandemic. Revenue from their e-commerce store and mobile app increased by 155%. E-commerce made up a staggering 54% of total revenue in the most recent quarter, up from 28% in fiscal 2019.
In its most recent quarter, the company’s sales actually grew by 2%. Strong online demand offset the closure of physical retail stores.
2. Lululemon has super healthy balance sheet
Another reason why I invested in Lululemon earlier this year was because of their really strong balance sheet. I knew that this brand was in a great position to thrive over her competitors the Covid-19 pandemic.
As of April 2020, Lululemon has $1.1 billion in cash, no debt. Right now, the company also has a life ratio 1.3.
This financial flexibility and strong balance sheet will empower Lululemon to invest in key, growth initiatives while other retail companies shrink to enhance liquidity.
Our approach in the current environment has been to protect against downside while also ensuring we continue to invest in our long-term growth opportunitiesSenior Vice President, Financial Planning and Analysis, Meghan Frank | Q2 2020 Earnings Call
True enough, in June 2020, they acquired home fitness app, Mirror, for $500 million. Mirror offers weekly live sessions and thousands of on-demand workouts including one-on-one personal training.
Mirror is going to be a focus for their company in the second half of 2020. They will increase marketing spend for MIRROR to take advantage of current trends toward spending from home and drive business during the holiday season.
To me, this seems like a great move. The center of Lululemon’s strategy is an omni ecosystem and approach. Digital plays a big part of that!
More importantly, this should provide recurring service revenue for Lululemon ahead, and aid in complementary sales of their athletic apparel and accessories.
Besides helping them with their digital initiatives, their excellent balance sheet has also helped them with their physical store expansion.
Lululemon has paid full rent throughout the pandemic, unlike brands like Gap Inc. that suspended some payments. The CEO hopes that this move will pay off as other retailers vacate prime spots.
3. Lululemon has so much more room to grow
Lululemon Athletica Inc. is aggressively trying to reach new customer segments. The company plans to more than double men’s revenue by 2023, while expanding its women’s and accessories business.
Lululemon also recently announced that they will sell more sizes, to increase its customer base. In the past, they only go up to size 14. And moving forward, they will expand their selection up to size 20.
They also intend to quadruple international sales by 2023. The overseas operation started from a very small base, so there is still a long way to go to reach its potential. Their areas of focus moving forward will be China, as well as the APAC and EMEA regions.
As of Q2 2020, this seems to be working out well for them. For Europe, Lululemon had a greater than 160% lift in e-commerce. E-commerce in China also grew over 130% in quarter two.
To grow even more, in Q2 2020, Lululemon also opened four stores in Mainland China, three in other markets across Asia and two in Europe.
Lululemon is now around 5% of my portfolio. I chose to allocate more of my money to technology companies that are growing more at over 30% YoY. As of now, it is still a HOLD for me. 🙂
I would like to remind all my readers again that this is not investment advice. I will not be answering any questions about whether you should buy or sell.
When it comes to investing, I feel that the wrong approach is not to blindly buy companies that other people buy, or make decisions based on popular trends.
You need to understand the company historical growth, future plans and fundamentals. That comes from taking time to learn investing properly.
Where can you learn to analyze stocks?
If you are truly interested in learning how to understand a business and choose stocks, please watch this free online course.
This course is by Jonathan Ang, Founder of 10X Capital. During this free session, he will share with you:
1. How To Understand A Business & How This Information Can Serve You As An Investor.
2. How To Arrive At A Stock Buying Price (So You Will Never Overpay For A Company)
3. How To Be Confident Of Your Decisions
If you are an absolute beginner and not where where to begin
You can also download our recent free webinar on how Millennials can begin our investing journey here:
****As of 3 NOV, I’ve sold my position in LULU and increased my position in ADOBE instead. I only sell when (1) Investment thesis is no longer valid (2) I found a better company. In this case, it is (2).