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Wall Avenue questions Lululemon 2026 monetary targets


A girl jogs previous a Lululemon retail retailer.

Bloomberg | Getty Photographs

Lululemon is setting lofty objectives for progress within the subsequent 5 years and laying out for analysts precisely the way it plans to get there. However not everybody on Wall Avenue is offered.

Lululemon shares shed 4.8% on Wednesday after the leggings maker announced it’s aiming to double its annual revenue by 2026 to $12.5 billion. The inventory was down greater than 1% in afternoon buying and selling Thursday. Inside its five-year plan, the retailer expects its males’s enterprise to double, its e-commerce gross sales to double, and its worldwide income to quadruple from 2021 ranges by 2026.

The corporate additionally introduced the upcoming debut of a new membership model centered around fitness classes, which might function one other potential income stream outdoors of its core attire arm.

At the least one analyst is worried about potential hiccups in Lululemon’s formidable blueprint given ongoing international provide chain disruption and inflationary pressures which can be weighing on customers. Following a current ascent within the retailer’s shares, others imagine traders might be coming away from Wednesday’s presentation a bit underwhelmed.

Hiccups

Jefferies analyst Randal Konik stated in a word to purchasers Thursday that Lululemon’s plan “would require an added stage of execution prowess,” in addition to stability within the broader macroeconomic atmosphere, that could be troublesome to realize.

Konik has a maintain score on Lululemon shares and a worth goal of $375. The inventory final traded nearer to $380.

Konik additionally stated that Lululemon’s recent push into the footwear category might show to be a poor concept, given all of the competitors already within the area, and that it might find yourself weighing on revenue margins. (Executives stated Wednesday that the launch, beginning with girls’s trainers, has been off to a robust begin, however did not provide particular gross sales numbers.)

Whereas Konik applauded the corporate’s new membership choices as a strategy to create extra loyal prospects, he reiterated his issues round Mirror, the at-home fitness business that Lululemon acquired for $500 million in 2020. Lululemon is folding the exercise content material on the Mirror platform into its $39-per-month membership plan.

“Our key concern is the slowing of unit gross sales as customers return to gyms,” Konik stated about Mirror. “We imagine Lululemon could have problem increasing the put in base going ahead.”

‘Scattershot’

Bernstein analyst Aneesha Sherman stated she stays cautious, notably round Lululemon’s skill to raise gross margins, given the rising position that worldwide gross sales will play within the firm’s broader technique.

Up to now, Lululemon has expanded abroad in a “scattershot” and expensive approach, leading to unprofitable progress, she wrote in a word to purchasers.

Lululemon goals to develop its worldwide enterprise in order that by 2026, it is going to be the scale that the North America enterprise was in 2020, executives stated. And will the lads’s class double gross sales within the subsequent 5 years as the corporate’s predicted, it could be bigger than its girls’s division was simply two years in the past.

Sherman has an underperform score on Lululemon, with a $280 worth goal.

“It is not that we do not like the corporate — with a high-quality product, a super-loyal following and an excellent administration crew, it has good fundamentals,” she stated. “However the progress trajectory of core merchandise is slowing and the enterprise mannequin was lending itself to zero margin upside.”

Baked in

Kimberly Greenberger, an analyst at Morgan Stanley, says Lululemon’s monetary objectives might not be that formidable — however that is truly the issue.

In a word to purchasers Thursday, she wrote that Lululemon’s monetary aims look like achievable and in keeping with the excessive bar that Wall Avenue has set for the athletic attire retailer in mild of its success relative to different attire companies throughout the coronavirus pandemic.

Nonetheless, given the run-up in Lululemon shares forward of Wednesday, she stated that traders might be coming away dissatisfied with the 2026 targets.

Lululemon’s inventory is up about 25% from a month in the past. When the retailer reported its fiscal fourth-quarter earnings outcomes on March 29, it provided a better-than-expected outlook for the present yr, which Greenberger stated could turn into conservative.

For 2022, Lululemon expects income of between $7.49 billion and $7.615 billion, with earnings per share in a spread of $9.15 to $9.35.

“Many of the long-term targets appeared already baked into Avenue numbers,” Greenberger stated.

Greenberger has an equal weight score on the shares, with a worth goal of $339.

Core to Lululemon’s plan will likely be product innovation, together with investing in new gear for actions like golf and mountaineering, outdoors of the yoga attire that it is best recognized for.

Chief Government Calvin McDonald stated Wednesday he believes the corporate continues to be within the “early innings” of its progress, citing the truth that Lululemon already doubled its gross sales from 2018 to 2021.

“The chance is actually to maintain doing what we’re doing. It is working. It is resonating,” McDonald stated.



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