Michael M. Santiago/Getty Images News Investment thesis Lululemon ( NASDAQ: LULU )( LULU:CA ) operates in the athleisure segment, which has been experiencing high growth, largely due to secular trends in wellness. It does so through a unique business model that allows for greater engagement with customers.
Notwithstanding market concerns over growth decelerating in its core North America market (same-store sales were flattish YOY in this geography), this seems to be attributed to strategic missteps in the near-term, with management already addressing the issues and indicating continued strong momentum overseas and a robust pipeline of innovation for 2H24E. Despite Lululemon topping estimates in Q1 and increasing the EPS guidance for FY24E, the stock continues to trade at a large discount. Although I think the de-rate may have been excessive, I believe the market will remain on the sidelines, waiting for greater conviction that the company can sustain strong growth in core regions vis-à-vis heightened competition and soft macro.
Until then, I don't see any catalyst that would lead to a multiple re-rate. In fact, I think it would be more prudent to wait until Q2 to confirm the thesis that the soft performance in North America in Q1 was a one-off. Lululemon employs a vertical retail strategy Lululemon is a retailer of technical apparel, footwear, and accessories, offering designs for activities such as yoga, running, training, and most other being on the move activities.
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