Lululemon’s big 5-year growth plans meets skeptics

If you think getting consumers to pay for an extra streaming service is hard right now, let’s see how difficult pedaling $100 yoga pants will be during a recession.

While recession risks could hurt consumer discretionary stocks, one company — Lululemon (NASDAQ:LULU) — wants investors to focus on its recently announced 5-year ambitious growth plan.

Lululemon succeeded by staying in its own lane…

Founded in 1998, Lululemon sells high-end athletic wear targeted at health-conscious professionals and healthy lifestyle enthusiasts.

Lululemon is the fastest-growing company among major athletic apparel brands helped by its athleisure dominance. Here’s how Lululemon achieved its record 2021 sales during a global pandemic…

• Men’s business: Lululemon had a target to double men’s sales by 2023 — and hit that target two years ahead of schedule.
• E-commerce: Digital sales tripled between 2019 and 2021, helping to grow revenue by 40% in 2021.

With consumers homebound, the athleisure category grew 53% in 2020 per Kantar. Like many other COVID trends, growth began slowing as consumers moved back to their normal lives.

So far, work-from-home is still sticking. A GlobalData survey in the first quarter of 2022 showed that two out of five consumers have continued to work from home.

With a five-year total return of 571%, $LULU has easily beat the S&P 500 — but can it continue to outperform?

Has the company changed its athleisure focus?

To achieve its goals, Lululemon wants to expand its product line beyond high-end activewear:

• Memberships: In 2020, Lululemon acquired Mirror – an at-home workout platform costing $39/month.
• Sneakers: Last month, Lululemon launched its first line of sneakers – expanding into the competitive footwear business.
• Resale program: Lululemon’s “Like New” resale website lets customers trade in and buy used products.

The goal by 2026: Double men’s sales, double e-commerce sales and 4x international revenue. But analysts are worried that Lululemon’s new plans could distract it from its core business. Global expansion could hurt margins — at a time when core product growth is slowing.

Bank of America’s Lorraine Hutchinson remains optimistic — seeing many “untapped opportunities across channels, geographies, and product lines.”

Investors: How essential are $100 leggings?

This year, consumer staples (i.e., essential goods) have vastly outperformed consumer discretionary stocks.

• Consumer Staples Select Sector SPDR Fund (NYSE:XLP) — is up 2% this year.
• Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) — is down 17.6% this year — nearing bear market territory.

While chasing consumer staple stocks at all-time highs might not be a great idea, it’s also risky to invest in consumer discretionary stocks as spending slows.

Lululemon’s plans depend on one big question: How much are consumers willing to pay for premium leggings during a recession?