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Why Is Lululemon Athletica (LULU) Seeing Upside in Asia Stores?

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Sep. 20 2015, Published 4:02 p.m. ET

Lululemon Athletica expands global store network

As mentioned in the last article, Lululemon Athletica (LULU) reported a 15.9% increase in its top line to $453 million in 2Q16, which ended August 2, 2015. Part of the upside in sales was provided by the company’s aggressive store expansion program in new locations around the world.

The Vancouver-based retailer opened 34 new stores in 2Q16. Most of the new store rollouts were in the United States. The activewear maker opened 27 stores in the United States in 2Q16, including 13 ivivva stores, its dance apparel brand for young girls.

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The number of stores in operation rose by 66 year-over-year to take LULU’s store tally to 336 at the end of the quarter. Over the past year, LULU opened new stores in the United States, Canada, the United Kingdom, Singapore, Australia, and Hong Kong, with 53 new outlets opening in the United States.

The global store count for competitors Adidas (ADDYY) and Columbia Sportswear (COLM) stood at 2,846 and 95, respectively, according to their last respective quarters.

Outlook

A bigger store footprint is positive for LULU. Considering the company’s product and revenue growth trajectory, this will likely prove bullish for future sales. The higher weight given to new rollouts in the United States is also one of the positives.

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Hong Kong stores

LULU’s planned international rollouts should also help build the brand internationally and provide more geographic diversification. According to Laurent Potdevin, LULU’s chief executive officer, the company’s new Hong Kong store may become the best-performing in terms of store productivity metrics. The company is slated to open another large store in Hong Kong in 3Q16.

eMarketer ranks LULU fourth

LULU already enjoys some of the highest sales per square foot metrics among retailers. According to eMarketer as reported in Fortune, Lululemon ranked the fourth-highest among US retailers in terms of sales per square foot at $1,675 in 2014.

LULU has opened a new store in Hamburg, Germany, and is slated to open two outlets in Dubai this year, the first Middle East foray for the retailer.

However, the higher US dollar may continue to be a headwind in the near term. It may nullify the impact of increased international sales to a large extent.

LULU makes up ~0.7% of the holdings in the First Trust Consumer Discretionary AlphaDEX ETF (FXD) and ~0.1% of the holdings of the iShares Russell Mid-Cap ETF (IWR).

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