Lululemon Stretches Into Personal Care Products

Athletic apparel retailer looking to diversify its business

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Jun 18, 2019
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In an effort to expand its business beyond athletic apparel, Lululemon Athletica Inc. (LULU, Financial) unveiled a new line of personal care products on Tuesday.

The Canadian retailer known for its popular yoga pants, sports bras and athleisure apparel launched these products, which include deodorant, dry shampoo, face moisturizer and lip balm, in 50 of its North American stores as well as online. They will also be available from select studio partners and on Sephora.com.Ă‚

Over the course of two years, the company said its development team worked with athletes to create effective self-care products that help individuals transition from “sweat to life.”

“Lululemon has always been in the work of creating solutions for sweaty problems and our Selfcare line is an extension of that approach," Chief Product Officer Sun Choe said. "Like our apparel, Lululemon Selfcare has been designed with function at its core and created to support guests pre- and post- workout.”

According to Lululemon’s website, the products, which are available in full and travel sizes, range in price from $12 to $48.

Yielding a market cap of $24.35 billion, shares of Lululemon were up 1.94% at $186.90 following the announcement with a price-earnings ratio of 49.09, a price-book ratio of 18 and a price-sales ratio of 7.53.

GuruFocus estimates the stock has climbed 54% year to date.

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The Peter Lynch chart indicates the stock is overvalued since it is trading higher than its fair value.

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Two of Lululemon’s biggest competitors, Nike Inc. (NKE, Financial) and Under Armour Inc. (UA, Financial), were also trading higher on Tuesday morning. Nike was up 2.42% at $84.10, while Under Armour shares rose 1.23% to $23.81.

Performance and valuation

Lululemon reported first-quarter earnings of 74 cents per share on $782 million in revenue last week, topping Refinitiv’s expectations of earnings of 70 cents per share on $755 million in revenue.

In addition, same-store sales, a key metric for retailers, grew 14%, beating estimates of 11.6% growth.

GuruFocus rated Lululemon’s financial strength 6 out of 10, driven by a good cash-debt ratio and robust Altman Z-Score of 16.51, which suggests it is in good fiscal health.

The company’s profitability and growth scored an 8 out of 10 rating. Although the operating margin is in decline, it still outperforms a majority of industry peers. Lululemon is also supported by strong returns, consistent earnings and revenue growth and a moderate Piotroski F-Score of 6, which implies conditions are stable. It also has a business predictability rank of 2.5 out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 7.3% per year.

Guru ownership

Of the gurus invested in Lululemon as of the end of the first quarter, Spiros Segalas (Trades, Portfolio) has the largest stake with 1.60% of outstanding shares.

During the quarter, Jim Simons (Trades, Portfolio)’ Renaissance Technologies established a position in the stock while Lee Ainslie (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) added to their holdings. Steven Cohen (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) trimmed their positions. John Hussman (Trades, Portfolio) is also a shareholder.

Disclosure: No positions.

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