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Home » Fitness » Lululemon Athletica Inc (NASDAQ: LULU) And The Future Of Fitness – Simply Wall St

COVID-19 is a crisis that has impacted everyone, from all walks of life and in some way or another. For those in the fitness industry, gyms have been closed and home workouts have become the new norm. Subsequently, home fitness products and connected fitness offerings, such as online group workouts and virtual gym memberships, have seen a huge surge in relevance and demand. This brings us to one of the latest developments in this space.

A High-Tech Mirror

Lululemon Athletica Inc. (NASDAQ: LULU) recently announced their acquisition of a young startup called Mirror, (for USD $500m cash), that offers interactive workouts from home via a $1,495 mirror. The product that the company sells is a high-tech reflective screen that streams live or on-demand classes and workouts from an app so that you can work out from home. This differs from the retail side of Lululemons business, but it ties in well with one of the companys strategies of creating a great Omni-guest experience for its customers (otherwise referred to as guests by the company). Considering Mirror is expected to generate $100m in revenue for 2020, after only launching in September of 2018 (and is expected to break-even by 2021), the fast-growing startup could provide a further boost to Lululemons growth prospects if the two offerings are successfully integrated.

View our latest analysis for Lululemon Athletica

How Has Lululemon Fared Through COVID?

For a retailer in a global crisis, Lululemon performed relatively well in the first quarter of 2020. Its net sales only declined by 17%, compared to others in the athleisure industry such as UnderArmour Inc (NYSE: UAA) and Nike Inc (NYSE: NKE), whose sales declined 23% and 38% respectively for similar periods. Lululemons decline in sales can be linked to a large portion of their 491 retail outlets being closed due to government-imposed lockdowns around the world, so it wouldnt be far-fetched to expect net sales to recover once more of their stores reopen.

The chart below outlines Lululemons history of earnings and revenue, both of which have grown over the last 5 years.

Heres where things get interesting. In their latest update, Lululemon also reported that their direct-to-consumer (DTC) sales increased by 68% and now represents 54% of the companys total revenue. Back in Q1 2019, DTC sales only represented 27% of their total sales, so it has doubled its contribution to the companys top line, and not only that, these online sales generate higher margins than those from their retail outlets. An increasing top-line and expanding margins typically means more profit can flow through to the bottom line and ultimately to shareholders pockets. To see the latest consensus from analysts about how the companys earnings and revenue will fare going forward, click here.

Investors may also find comfort in the fact that according to our analysis, Lululemon has a flawless balance sheet. Not only do they have short term assets (US$1.7bn) that outweigh long term (US$734m) and short term (US$631m) liabilities, but they also have no debt. This latest acquisition, if done with cash as expected, will reduce their $823m cash balance accordingly.

All In All

Lululemons acquisition of Mirror is a bold statement about where they think the future of fitness is going. It has recognized that there are new ways of building intimate relationships with their guests and Mirrors offering would help them solidify their stance as an experiential brand. The company has performed relatively well through COVID so far and thanks to its strong balance sheet, favorable growth prospects, and brand loyalty among customers, it seems well equipped to continue to do so.

Keep in mind though, every company bears some elements of risk, and Lululemon is no exception. Weve identified some risks that you ought to be aware of.

Alternatively, if you want to find more companies like Lululemon, weve compiled a list of companies that have solid balance sheets and fundamentals here.

At the time of writing, the author has no position in any company mentioned. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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Lululemon Athletica Inc (NASDAQ: LULU) And The Future Of Fitness - Simply Wall St

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Home » Fitness » Lululemon Athletica Inc (NASDAQ: LULU) And The Future Of Fitness – Simply Wall St