Morningstar | Despite Intense Competition, Narrow-Moat Lululemon Continues to Boast Strong E-Commerce Sales
Despite an onslaught from competitively advantaged foes with deep pockets, Lululemon’s high-quality products and brand recognition have helped the company boost its market position without ceding pricing power, as evidenced by its industry-leading gross margins (averaging 53%) and double-digit average annual same-store sales growth since 2010. Its business model--selling almost exclusively directly to consumers--allows it to keep a grip on customer relationships, which we think enhances loyalty and gives the company further insights into evolving consumer trends. As a result, we stand by our belief that Lululemon has a narrow economic moat.We think top-line gains should persist as the company expands beyond its core niche in North American womenswear. We think the company is smartly building demand overseas with its “Unroll China†and “This is Yoga†campaigns, and we think most store expansion will be overseas, particularly in Asia. Moreover, the company continues to build out its digital sales strategy, which we think will allow it to meet demand in places where it does not have a sufficient physical presence. We expect digital sales to constitute around 30% of sales in 2020, versus about 22% in 2017.While the company has benefited from the athleisure trend, we don’t believe its future depends on it. We don’t expect the same athleisure tailwind going forward, which mutes our sales forecast. However, we also believe that societally, more-casual clothing has become acceptable in multiple environments, including the workplace. We expect that acceptance to persist and for many consumers to choose comfort when given the option. Far more important, a shift in what people wear while exercising--higher-quality, technologically advanced fabrics that flatter figures and offer style--is the main fuel for our growth assumptions.lululemon athletica is a designer, distributor, and retailer of athletic apparel. Co.'s athletic apparel is marketed under the lululemon and ivivva brand names. Co. provides a line of apparel and accessories for women, men and female youth. Co.'s apparel assortment includes items such as pants, shorts, tops, and jackets designed for healthy lifestyle and athletic activities such as yoga, running, training, other sweaty pursuits, and athletic wear for female youth. Co. also provides fitness-related accessories. Co. primarily conducts its business through two channels: company-operated stores and direct to consumer. As of Jan 28 2018, Co. operated 404 stores.
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