3 Big Reasons to Love Lululemon (LULU)

What a brutal six months it’s been for Lululemon. The stock has dropped 52.3% and now trades at $196.75, rattling many shareholders. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Given the weaker price action, is now an opportune time to buy LULU? Find out in our full research report, it’s free.

Why Are We Positive On LULU?

Originally serving yogis and hockey players, Lululemon (NASDAQ:LULU) is a designer, distributor, and retailer of athletic apparel for men and women.

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.

Lululemon has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.6%.

2. Elite Gross Margin Powers Best-In-Class Business Model

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

Lululemon has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 58.9% gross margin over the last two years. That means Lululemon only paid its suppliers $41.14 for every $100 in revenue.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Lululemon has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 14.8% over the last two years.

Final Judgment

These are just a few reasons why Lululemon is one of the best consumer retail companies out there. With the recent decline, the stock trades at 13× forward P/E (or $196.75 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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