sonyaany
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 Posted: 20 Jan 2016 10:26 Post subject: mens nike air max express training |
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3 Reasons Lululemon Could Be Ready To Stretch Higher
With a relatively new CEO, a seemingly renewed focus on the company's image, and investors waiting for the stock to move, Lululemon Athletica (NASDAQ: LULU) looks like a stock about to break out. In fact, there are 3 specific reasons to believe that the company behind the yoga inspired clothing line can improve its fortunes and stretch investors' returns Cheap Nike Air Max 2016 going forward.
Sometimes it really is this simpleIt's fortunate for Lululemon that investors and customers alike have very short memories. The company seems to be finally recovering from the double trouble of problems with its quality control and some unfortunate comments from its former executive.
When you add these challenges to an extremely competitive landscape where Nike (NYSE: NKE) dominates the footwear business, and Under Armour (NYSE: UA) makes a killing in the apparel business, Lululemon has its work cut out for it. Of course, one way a company can help investors forget such unfortunate events is to put cash back in their pockets.
While Lululemon doesn't pay a dividend, the company does repurchase shares. In fact, this is the first reason the company's shares could move higher. In the last year, Lululemon retired roughly 2.5% of its outstanding shares. By comparison, Nike retired 2.3% and Under Armour's shares actually increased by more than 1%.
Of course, the direct benefit to investors when shares are retired is two fold. One, all things being equal, the remaining shares become more valuable. Two, the company's earnings per share in the future should improve. Lululemon's management also appears to have avoided the trap that other companies have fallen into in the past.
The company actually repurchased shares during a time they were down in value as opposed to overpaying for shares after they had run up in value.
A direct connectionThe second reason Lululemon could be getting ready to move higher is because of the company's opportunity in its direct to consumer business. One of the great things about selling direct to consumers is the company can Nike Air Max 2016 Womens more tightly control its brand. If this sale occurs in a company store, the brand and message behind the brand is consistent. If the customer buys the product online, theoretically the company should realize a better margin from less overhead expense.
In its last quarterly earnings release, Nike barely mentioned the direct to consumer business except in relation to growing its Converse business. On the other hand, Under Armour regularly makes mention of selling direct to consumer. In Under Armour's recent earnings, the company said that 25% of its sales occurred through the direct to consumer channel and these sales increased by 21%.
Lululemon on the other hand, generated 19% of its sales through this channel and these sales increased by 15%. The fact that Under Armour gets 6% more of its total sales in its direct to consumer business bodes well for Lululemon.
Both companies operate premium brands, and selling direct allows the company to control the experience better. There is little reason to believe that both Lululemon and Under Armour can't continue to grow their direct sales to the benefit of shareholders.
A clear margin of victoryThe third reason Lululemon may be Nike Air Max 2016 Womens about to stretch higher is hiding within the company's margin and how it relates to the company's comparable store sales. If Lululemon hopes to maintain its premium brand status, it only makes sense that the company needs to be able to Cheap Nike Air Max 2016 generate better margins than its competition. However, better margins don't mean as much if comparable sales are falling.
When it comes to operating margin, Lululemon is miles ahead of its peers with a current quarter number of 26%. Considering that Nike's operating margin was 14%, and Under Armour managed an operating margin of just over 3%, it's painfully obvious which of these companies makes the most from each sale.
That being said, when customers were questioning Lululemon's quality, high margins couldn't hide trouble in the company's comps. For instance, in August of 2014 comps declined by 1%. The news started to improve near the end of last year, with comps increasing by 3%. Lululemon's current quarter showed investors that customers are returning to the company's products as comps increased by 8%.
Final thoughtsGiven that Lululemon's stock has been range bound for the majority of 2015, investors are likely getting restless. For long term growth investors, it appears their patience is about to be rewarded. The company showed faith in its future by retiring relatively more shares than its peers. With a big opportunity to continue expanding its direct to consumer business, and comps that seem to be returning to normal, it's time to take another look at Lululemon.
This premium brand has been through the ringer over the last year, but it looks like the company is getting back on track. If these trends continue, it's no stretch to say that this could be a good time for investors to pick up some shares. |
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