Wall Street questions Lululemon 2026 financial targets
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A woman walks past Lululemon stores while she jogs.
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LululemonThe company has ambitious growth goals and laid out the steps it will take to reach them. Wall Street may not be for everyone.
Lululemon shares dropped 4.8% Wednesday, following the announcement by leggings producer announced it’s aiming to double its annual revenue by 2026 to $12.5 billion. In early trading on Thursday, the stock rose by 1%. According to the retailer’s five year plan, it expects that its mens business will double and its ecommerce sales to triple, as well as its international revenues to quadruple between 2021 and 2026.
The company announced also the imminent debut of a new membership model centered around fitness classesIt could also be used as a revenue source outside its core apparel business.
One analyst worries about possible hiccups to Lululemon’s ambitious blueprint, given the ongoing global supply chain disruptions and inflationary pressures that have been weighing on consumers. Other analysts believe that investors might be disappointed by Wednesday’s presentation after a recent rise in shares of the retailer.
Hiccups
Randal Konik, a Jefferies analyst, stated in a Thursday note that Lululemon’s plan will require “an added level of execution prowess” and stability in the wider macroeconomic environment. This may prove difficult.
Konik rates Lululemon shares as a “hold”, with a $375 price target. Stock traded close to $385 in the last trading session.
Konik said also Lululemon’s recent push into the footwear categoryGiven all of the competitors in this space it may prove to be an unwise idea and could impact profit margins. Although the women’s launch was strong, executives didn’t give specific figures.
Konik praised the new company membership options as a way of creating more loyal customers. However, he reiterated concerns about Mirror. the at-home fitness business that Lululemon acquired for $500 million back in 2020. Lululemon will incorporate the Mirror platform’s workout content into their $39 per-month membership program.
Konik stated that Mirror was her key concern. Lululemon is likely to have trouble expanding its existing base.
‘Scattershot’
Aneesha Sherman, Bernstein analyst, said that she is cautious about Lululemon’s ability to increase gross margins given Lululemon’s increasing importance in international sales.
Lululemon had in the past expanded internationally in a scattershot and expensive manner, which resulted not in profit growth. She wrote this in a note for clients.
Lululemon executives stated that it aims to increase its international business until 2026 so it can be twice the size of the North America business. The company predicts that the sales of the men’s section will double in five years, which would make it more successful than the women’s business was two years ago.
Sherman is rated “underperform” on Lululemon with a target price of $280.
“It’s not that we don’t like the company — with a high-quality product, a super-loyal following and a good management team, it has good fundamentals,” she said. The growth of core products has slowed and the business model allowed for zero margin upside.
Baked in
Kimberly Greenberger, an analyst at Morgan Stanley, says Lululemon’s financial goals may not be that ambitious — but that’s actually the problem.
Lululemon’s financial targets appear achievable, according to Ariel in a Thursday note to clients. This is in keeping with Wall Street’s expectations given Lulemon’s success in the apparel business during the coronavirus outbreak.
She said investors might be dissatisfied by the 2026 targets, however, considering the rise in Lululemon shares before Wednesday.
Lululemon stock has increased by 25% in the past month. The retailer’s fiscal fourth-quarter earnings report was released on March 29. It offered a more optimistic outlook for the future year than expected, according to Greenberger.
Lululemon predicts that 2022 will see revenue between $7.49 and $7.615 Billion, with earnings per share ranging from $9.15 up to $9.35.
Greenberger said that “most of the long term targets were already in Street numbers.”
Greenberger holds an “equal-weight” rating for shares with a $339 price target.
Lululemon will continue to innovate its products, investing in new equipment for outdoor activities such as golfing and hiking. This is on top of yoga clothing that the company is best known for.
Calvin McDonald, Chief Executive Officer of Lululemon said Wednesday that the company was still in the early innings of growth. He pointed to the fact Lululemon had already doubled sales between 2018-2021.
“The only way to make a difference is to do what we are doing. It’s working. McDonalds stated that the idea is “resonating”.
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