Best Stocks for 2019: Lululemon Keeps Killing It

Editor’s note: This column is part of our Best Stocks for 2019 contest

Lululemon athletica inc (NASDAQ: LULU) came out with its fourth-quarter and fiscal-year numbers yesterday. And LULU slayed. Again.

Not only did its numbers show why LULU stock is up 15.7% today and more than 65% in the past 12 months, but it did the analysts one better. It guided far better than analysts expectations for the current fiscal year.

That’s like manna for analysts and big investors, particularly in this market where most companies are lowering their expectations as growth from the big tax cut has waned and they can’t keep artificially boosting earnings by buying back stock.

LULU has boosted earnings the old-fashioned way, by growing its business. And it looks like that momentum is growing, not diminishing.

LULU Shows No Signs of Slowing

There’s one thing about success, it tends to bring more.

And as these earnings numbers spread, it will filter down beyond investors to consumers. They will hear that lululemon is killing it. And that will draw more consumers who were previous fence sitters or tire kickers.

Remember, LULU apparel sells at a premium. And because of the way it controls distribution of its products, it can keep that premium pricing and choose when and what it wants to discount.

This kind of pricing power is huge.

Usually, as a company gets bigger, it expands its distribution channels to get more customers to grow the business. Inevitably that means the company has to offer a cheaper brand or accept big retailers’ pricing and sales efforts. This cuts into margins.

So far, LULU hasn’t had to do that. And given its success with its current model, it won’t have to for a long time to come.

By managing the brand so well, it also means that it builds a very dedicated group of customers that choose quality over quantity — 2 pairs of lululemon yoga pants are better than 6 of a cheaper brand.

LULU also recently announced that it has begun a membership program, which should boost this business even more. It’s like Amazon “(NASDAQ:AMZN) Prime for athleisure. For around $130 a year, you get a pair of pants or shorts, unlimited access to classes and free expedited shipping.

LULU has already run pilot programs in a handful of markets and has announced it will be extending the membership program around the US in 2019.

According to PerfectPrice.com, an AI software company that builds revenue management systems, in 2016 LULU had the highest average spend per consumer among specialized clothing retailers at around $100. Given the fact that a pair of pants runs around $100, that likely hasn’t changed, unless it has risen.

The point is, a membership fee is basically buying a pair of lululemon pants and for $30 more, getting access to classes and free fast shipping for a year. That’s a pretty good deal. And it also keeps LULU’s margins rock solid.

And there this note to leave you on: lululemon’s same store sales for the past fiscal year were up a staggering 16%. Usually, high single-digit growth is impressive.

Not surprisingly, my Portfolio Grader rates LULU an A.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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