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Why Lululemon (NASDAQ:LULU) is One of the Best Names in Retail

Although it might appear expensive based on its valuation, it’s hard to argue against a stock that is hitting new all-time highs in a mixed market. Le...

This story originally appeared on MarketBeat

The retail space is more crowded than ever these days, which is why it's particularly impressive the Lululemon (NASDAQ: LULU) continues putting up big numbers quarter after quarter. With consumer preferences changing quickly and benefitting certain specialty retailers that are ahead of the curve, this is the perfect example of a company that has created a truly unique brand. The athleisure apparel company is taking advantage of how people are focusing more on their health and wellness following the pandemic, and with plenty of remote workers looking for comfortable clothing to either working out or relaxing in their residences, these secular trends support the bull case for adding shares.

There are several other reasons why Lululemon is one of the best names in retail and a company that could only just be getting started in carving out a unique niche in the industry. Although it might appear expensive based on its valuation, it’s hard to argue against a stock that is hitting new all-time highs in a mixed market. Let’s take a deeper look at what makes Lululemon stand out below.

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Luxury Athleisure Brand Commands Higher Prices

If you aren’t familiar with the term athleisure, it refers to clothing constructed with comfortable materials that can be used for both exercise and everyday wear. Lululemon offers this type of apparel including pants, shorts, tops, and jackets that are designed for a healthy lifestyle and athletic activities including yoga, running, training, and more. Even though the company has to compete with sports apparel giants like Nike, Adidas, and Under Armour, it still generates billions in sales thanks to its powerful brand name, which investors should look at as a strong competitive advantage.

Lululemon has been credited with being the creator of athleisure wear and has carefully crafted a luxury brand name that commands higher prices than peers. Unlike many competitors, the company does not have a large wholesale business and can directly control the entire sales process. This has helped the company to separate itself as a premium apparel provider since you won’t be able to find its products in discount retailers and also allows Lululemon to control everything from pricing to marketing. The company’s 534 retail stores are known to have the highest sales per square foot of any U.S. apparel retailer, and it’s clear that the company’s brand is stronger than ever given its recent earnings.

Blockbuster Earnings and Big Outlook Hike

Let’s face it – plenty of retailers were suffering prior to the pandemic and are still struggling to figure out how to adapt. That’s another reason why Lululemon stands out at this time, as it’s a specialty retailer delivering blockbuster earnings during an uncertain period for many companies in the industry. The athleisure powerhouse delivered a Q2 revenue increase of 61% year-over-year to $1.5 billion and saw its company-operated stores net revenue increase 142% to $695.1 million. This is big because it tells us that people are getting comfortable with shopping in public again, just in time for the holiday season.

Other highlights from the blockbuster Q2 earnings report included a Net Income increase of 140% to $208.1 million and an EPS beat of $0.46 per share according to Marketbeat’s earnings data. Investors should also be encouraged by the company’s big outlook hike that puts the company on track to achieve its ambitious 2023 revenue targets 2 years early. In a sector with plenty of companies with questionable prospects going forward, it’s quite clear that Lululemon is a name that commands attention.

Growth Opportunities Abound

While it’s nice to see Lululemon smash its latest earnings estimates, what investors really care about is where the company is going in the future. The good news is that there are plenty of opportunities for this specialty retailer to grow going forward. As a brand that traditionally has been popular with women, Lululemon has plenty of sales upside if it can successfully expand its product offerings for men. There’s also the fact that the company plans to launch its own footwear brand in 2022 which could be another big step forward.

Perhaps the most intriguing growth opportunities for Lululemon lie in the company’s international exposure and e-commerce platform. Net revenue increased by 49% internationally in Q2 for the company and there are certainly plenty of opportunities for Lululemon to take advantage of the massive apparel market in China over the next few years. We also know how important a strong digital sales channel is for companies these days, and Lululemon’s e-commerce revenue accounted for 41% of its total revenue in Q2. It wouldn’t be surprising to see e-commerce sales surpass in-store sales in the coming years, which is another strong reason to consider adding shares.