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Will Lululemon Trade-In Program Move the Needle on LULU Stock?

LULU stock - Will Lululemon Trade-In Program Move the Needle on LULU Stock?

Source: lentamart / Shutterstock

Lululemon (NASDAQ:LULU) stock is climbing today after the apparel maker announced their new Lululemon Trade-In Program. I believe that the initiative will likely help the company in multiple ways, making LULU stock slightly more attractive than it was previously. Overall, I’m very upbeat on the shares. But I used the word “slightly” because I expect the  new program to only improve the company’s financial results by a small amount.

What Is the Lululemon Trade-In Program?

Starting on Apr. 22,  Lululemon will launch what it is calling a Like New Resale program throughout the U.S. As a result, its customers will be able to exchange their used Lululemon apparel for e-gift cards. Those cards can be used to buy resale products online.

How Could the Program Affect Lululemon?

According to the company, it conducted a trial run of the Lululemon Trade-In Program at over 80 of its stores starting in May 2021. The trial “was met with an overwhelmingly positive response.”

Lululemon is presenting the program as an environmental initiative and it says that all of the profits from the initiative will be used to bankroll its pro-environment commitments. That angle is likely to attract Lululemon’s more green fans to at least try the program.

But I don’t expect the  majority of Lululemon’s regular customers who have been able to afford to pay its rather high prices to buy any used clothes from it. And, although the program could attract new, more cost-conscious customers, I think such consumers are more likely to jog in parks or work out in low-cost gyms than do yoga, making them unlikely to become Lululemon’s customers.

To use an extreme analogy, the Lululemon Trade-In Program is kind of like opening a used-car dealership specializing in very cheap vehicles in Beverly Hills. Such a dealership would do very poorly because the vast majority of Beverly Hills’ residents can easily afford new, luxurious vehicles.

On the other hand, however, the Lululemon Trade-In Program could increase Lululemon’s top and bottom lines. Although the company says it is devoting the program’s profits to fulfilling its environmental commitments, the initiative will still increase its bottom line because it had previously planned to spend money on fulfilling its promises. And that increase is likely to lift LULU stock.

Moreover, the program can ease the strains on Lululemon’s supply chain, since the company will be able to utilize used clothes to meet a small portion of the demand for its products. Of course, it is much easier and cheaper to transfer used clothes from stores to warehouses and then to consumers within the U.S. than having clothes made overseas, shipped to the U.S., sent to warehouses, and then shipped to stores and consumers.

The Outlook of LULU Stock

In Lululemon’s fiscal third quarter, the company’s revenue jumped 30% year-over-year to $1.5 billion. What’s more, as fears of the coronavirus subsides, group yoga sessions are likely to become more popular and the forward price-earnings ratio of LULU stock is a reasonable 39.22. As a result of these points, I’m bullish on the shares and recommend that investors buy them.

On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

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