Lululemon Shows Sports Apparel Is Outpacing Retail Sector Growth
Lululemon Athletica (LULU) is looking at organic growth to boost revenues and earnings in the near to medium term. Store expansion in North America and abroad is a big part of its strategy. It’s planning to open 20 new stores each in Europe and Asia, by 2017. It’s also looking to strengthen its foothold in the vital US market.
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November retail sales
US retail (XRT) sales in October and November beat expectations, growing by 0.5% and 0.7%, respectively, month-over-month. The gains came as an improving labor market and lower prices at the pump boosted consumer (XLY) spending. Apparel and accessory sales grew faster, increasing 1.2% in November.
Sports apparel sales
Sports apparel as a category has been outpacing growth in 12 other retail segments for several months now. This should benefit sales for Lululemon Athletica (LULU) and its competitors Under Armour (UA) and NIKE (NKE). The Gap’s (GPS) Athleta brand should also benefit from this trend. Plus, revenues and margins for sports apparel sellers should also get a boost in the quarter due to pricier winter clothing and holiday season sales.
Transaction growth has been the major driver, outpacing growth in ticket value by far over the past few months. This trend is positive for store traffic. Wage gains, or the lack thereof, have been a worrying factor in the improving labor market. They will be critical for future increases in ticket value. In the third quarter of fiscal 2015, LULU saw positive store traffic, but conversion rates and units per transaction were lower.
US retail sales
While the US economy has been improving, macroeconomic factors are less favorable in other major economies like the Eurozone. This could see LULU becoming more selective in the countries it’s looking to expand in over the short-to-medium term. Due to these factors, the US market will remain the most important driver for LULU in the medium term.
To read an overview of Lululemon’s competitor Under Armour, see the Market Realist series High-Performance Winner? Your Must-Know Guide To Under Armour.
For more sector updates, visit Market Realist’s Consumer and Retail page.