Huge News For Lululemon Stock

Lululemon is strategically addressing lagging North American sales through a new partnership with American Express Platinum, offering a $75 quarterly credit that could generate up to $900 million in annual revenue from affluent cardholders, despite potential margin impacts. This initiative aims to re-accelerate domestic growth while leveraging robust international expansion, notably 24% year-over-year growth in China and 15% in other markets. These catalysts, alongside product innovation, are expected to accelerate Lululemon's 7% consolidated revenue growth. The stock, down 66% from its highs and trading at an 11.7 P/E, presents a potential value opportunity given the anticipated growth re-acceleration.

Analysis

Lululemon (LULU) is facing a dichotomous market reality, with stagnant growth in its core North American market being offset by robust international expansion. Revenue in North America, totaling $6.5 billion over the last 12 months, has shown minimal recent growth. To address this, Lululemon has initiated a strategic partnership with American Express, offering a $75 quarterly credit to Platinum cardholders, a move estimated to potentially generate up to $900 million in new revenue, albeit with a likely impact on margins due to a "large kickback" to American Express. This initiative targets an affluent consumer base to reignite domestic sales. Concurrently, the company's international business remains a powerful growth engine, with revenue in China increasing 24% year-over-year in constant currency and 15% in the rest of the world. This has pushed international revenue towards $3 billion, up from under $1 billion in 2020. The market appears to have priced in significant pessimism, with the stock down 66% from its highs and trading at a price-to-earnings ratio of 11.7, a substantial discount to the S&P 500's average P/E of over 30. These catalysts, combined with product innovations, are positioned to potentially accelerate the company's current 7% consolidated revenue growth, creating a disconnect between the current valuation and future growth prospects.

Key Decisions for Investors

• Investors should evaluate Lululemon as a potential turnaround opportunity, given the stock's 66% decline and low 11.7 P/E ratio, which contrasts with identifiable growth catalysts in North America and abroad.
• It is critical to monitor upcoming quarterly reports for evidence that the American Express partnership is successfully re-accelerating North American revenue from its recent stagnation, and for confirmation that international growth remains strong, particularly the 24% pace in China.
• Closely assess the impact on gross margins from the American Express partnership, as the article notes a significant cost is associated with the program which could partially offset the top-line benefits of the potential new revenue.