Lululemon’s stock price has taken a beating over the past six months, shedding 25.9% of its value and falling to $124.61 per share. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Following the pullback, is now an opportune time to buy LULU? Find out in our full research report, it’s free.
Why Is Lululemon a Good Business?
Originally serving yogis and hockey players, Lululemon (NASDAQ: LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
1. Solid Same-Store Sales Suggest Increasing Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Lululemon’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.6% per year.
2. Elite Gross Margin Powers Best-In-Class Business Model
We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.
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 57.9% gross margin over the last two years. That means Lululemon only paid its suppliers $42.12 for every $100 in revenue.
3. Operating Margin Reveals a Well-Run Organization
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 21.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Final Judgment
These are just a few reasons why we think Lululemon is a high-quality business. After the recent drawdown, the stock trades at 9.7× forward P/E (or $124.61 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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