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lululemon (LULU) Showcases Positive Trends Amid High Costs

lululemon athletica inc. LULU stays ahead of the curve, thanks to the continued business momentum and its innovative products. The company is capitalizing on the importance of physical retail and the convenience of online engagement. It is also on track with the Power of Three X2 growth plan.

LULU has been showcasing growth across channels, regions and product categories. This underscores the company's ability to attract and retain customers, both in-store and online. The top and bottom lines have been witnessing positive trends, driven by these factors.

Positive Trends in Focus

LULU has always been dedicated to providing a seamless and convenient shopping experience through its omni-channel retail model. Strengthening omni-channel capabilities like curbside pickups, same-day deliveries and BOPUS enhance customer convenience, and keep the company competitive in today's market. At the store level, total sales increased 15% year over year in the fourth quarter of fiscal 2023, while comparable store sales were up 6%. The company witnessed about 20% traffic growth at stores. It continues to remain focused on investments to enhance the in-store experience.

By investing in e-commerce infrastructure, the company is likely to enhance its digital presence. It has been investing in developing sites, building transactional omni functionality and increasing fulfillment capabilities. Digital revenues accounted for 52% of its net revenues. E-commerce traffic also improved 20% in the fourth quarter of fiscal 2023.

LULU has been on a successful growth trajectory with the Power of Three x2 growth plan. As part of the plan, it aims to double its net revenues by 2026, reaching an impressive $12.5 billion. The plan focuses on three key growth drivers, including product innovation, guest experience and market expansion.

Lululemon's strategic initiatives to increase brand awareness, such as community-based events and brand campaigns, are crucial for attracting customers and strengthening brand loyalty. These efforts help solidify its position as a leading brand in the athleisure space.

Hiccups in the Path

lululemon has been witnessing elevated SG&A costs, owing to investments toward strategic initiatives to build brand awareness and accelerated focus on fueling its Power of Three X2 plan. Increased investments to grow brand awareness, acquire guests and higher depreciation resulting from technology investments made in fiscal 2022 and 2023 are expected to result in higher SG&A expenses in first-quarter fiscal 2024.

Consequently, shares of the Zacks Rank #3 (Hold) company have lost 7.8% in the past year compared with the industry’s decline of 1.1%. The stock also underperformed the Consumer Discretionary sector and S&P 500’s growth of 7.1% and 26.5%, respectively, in the same period.

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Conclusion

With its strong revenue growth, international expansion and commitment to innovation, Lululemon has positioned itself for continued success. However, investors should be mindful of potential risks, such as the challenging U.S. consumer environment and increased expenses, which could impact LULU's performance in the future.

Stocks to Consider

Some better-ranked companies in the Consumer Discretionary sector are Hanesbrands HBI, Crocs CROX and Gildan Activewear GIL.

Hanesbrands engages in the design, manufacture, sourcing and sale of apparel essentials for men, women and children in the United States and internationally. The company currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 10.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Hanesbrands’ current financial-year earnings suggests significant growth of 650% from the 6 cents reported in the prior year. The consensus mark for HBI’s earnings per share has moved up by a penny in the past 30 days.

Crocs, one of the leading footwear brands with its focus on comfort and style, currently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter earnings surprise of 17.1%, on average.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings suggests growth of 4.4% and 5.2%, respectively, from the year-ago reported numbers. The consensus mark for GES’s earnings per share has moved up 1.6% in the past 30 days.

Gildan Activewear, a manufacturer and marketer of premium quality branded basic activewear, currently carries a Zacks Rank #2. GIL has a trailing four-quarter earnings surprise of 5.6%, on average.

The Zacks Consensus Estimate for GIL’s current financial-year sales and earnings suggests growth of 2.1% and 14.4%, respectively, from the year-ago period’s actuals. The consensus mark for GIL’s earnings per share has been unchanged in the past 30 days.

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Hanesbrands Inc. (HBI) : Free Stock Analysis Report

lululemon athletica inc. (LULU) : Free Stock Analysis Report

Crocs, Inc. (CROX) : Free Stock Analysis Report

Gildan Activewear, Inc. (GIL) : Free Stock Analysis Report

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