Prediction: Lululemon Will Be Worth More Than Adidas by 2030

Lululemon Athletica (LULU) shares have significantly underperformed, down 53% year-to-date and currently trailing Adidas in market capitalization, yet the article projects a strong comeback over the next five years. This anticipated reversal is predicated on a strategic acceleration in new product development, aiming to increase new styles to 35% of its assortment, alongside efforts to reignite U.S. sales and capitalize on robust international growth, particularly in China. Analysts forecast substantial revenue and EPS growth through 2030, with current valuation multiples (forward P/E of 14, P/S of 2) suggesting significant upside potential through multiple expansion as the brand regains momentum.

Analysis

Lululemon Athletica (LULU) shares have significantly underperformed, declining 53% year-to-date and hitting a five-year low in mid-September, positioning it at the bottom of the Consumer Discretionary Select Sector SPDR Fund. Its current $21 billion market capitalization lags Adidas's $38 billion, a notable reversal from early 2024 when LULU was twice as large. This struggle is primarily linked to sluggish U.S. sales.

Management is addressing this with a turnaround strategy, emphasizing a three-fold acceleration in new product design and development to boost new styles from 23% to approximately 35% of its assortment by next spring. This aims to reignite demand in the critical U.S. market. Meanwhile, international segments are strong, with China revenues up 25% year-over-year in Q2 and other international sales rising 19%.

Analyst estimates project robust future growth, with full-year revenue increasing from $10.98 billion in fiscal 2025 to $15.62 billion in 2030, and adjusted EPS rising from $12.99 to $25.65 over the same period. Lululemon's current forward P/E of 14 and P/S of 2 are well below five-year averages, with the P/E dropping to 7x fiscal 2030 estimates, indicating significant potential for multiple expansion.

Key Decisions for Investors

• Consider LULU for long-term growth portfolios given its strategic product revamp, strong international expansion, and compelling valuation multiples relative to analyst 2030 estimates.
• Monitor Q3 earnings in early December for updates on the U.S. turnaround strategy and further details on the new product acceleration plan.
• Evaluate the potential for multiple expansion as the company executes its growth strategy and regains market momentum, especially considering the current depressed P/E and P/S ratios.