After another impressive Lululemon (NASDAQ: LULU) earnings, is it time to buy? LULU stock is down almost 40% from its all-time highs despite the growth.

Best known for its yoga line, Lululemon is expanding into much more. The pandemic boosted the company’s business as health and fitness trends picked up. For example, since the pandemic, 80% of fitness users watch live-stream workouts. In comparison, only 7% did so pre-pandemic.

As a result, people are more health-aware. And Lulu’s connection to consumers grew as digital sales soared. Meanwhile, LULU outperformed its peers, gaining market share.

The headwinds are carrying the fitness brand to new heights. Revenue continues growing, margins are solid, and Lululemon’s balance sheet remains bulletproof.

Many retailers are feeling the effects of inflation and supply chain issues. Yet Lulu continues building momentum.

With another big earnings beat and LULU raising guidance, what’s next? Keep reading to learn if Lululemon can keep up the impressive performance and what to expect from LULU stock next.

Lululemon Q1 Earnings Highlights

Lululemon is seeing strong demand for its products. Traffic picked up significantly both online and in-store, with 40% growth YOY. With this in mind, the company’s Q1 earnings reflect Lulu’s growing global brand awareness.

Despite closing a third of its stores in China due to lockdowns, revenue grew by double digits. Furthermore, total revenue grew 32% while EPS advanced 28%, beating analyst expectations.

• EPS: $1.48 vs $1.43 expected.
• Revenue: $1.6B vs $1.5B expected.

Accordingly, the firm is not only seeing international growth (+29%) but also growth in North America (+32%).

The solid digital presence Lululemon built during the pandemic continues boosting sales. Direct-to-consumer (DTC) revenue grew another 32% in Q1. Not only that, but stores are also booming, with comp sales up 24%.

Nonetheless, the growth represents an impressive three-year CAGR of 27%. Inflation cutting into profits, and difficulties with supply is cutting into retail profits

So far, Lulu is managing the challenges with its ability to control pricing and superior supply chain. Although the report had plenty of positive takeaways, there are still some questions to be answered.

For one thing, the company has unusually high inventory levels ($1.3B, +74% YOY). Lastly, like many retailers, Lululemon is starting to feel the effects of inflation, such as higher material and labor costs.

Can Lululemon Stock Keep up the Momentum?

The big question investors are asking is, will the momentum continue? For one thing, Lulu’s superior pricing power is proving to be a strength as price hikes are not slowing demand.

On top of this, the company focusing on technical athletic clothing (yoga, running, working out, etc.) helps create demand all year. As a result, there is less need to mark products down.

Most important, the company’s branding is more effective than ever. When people see the brand, they know it’s high quality. As a result, Lulu’s brand is expanding around the globe.

For this reason, the company believes it can double its revenue from $6.25B last year to over 12B by 2026. The company’s five-year growth plan includes the following.

• Doubling men’s business.
• Double-digit growth in women’s.
• Doubling digital sales.
• Double-digit in-store growth.
• Quadrupling international sales.

Lululemon plans to do this through its upgraded “Power of Three (X2)” growth strategy. With this in mind, the plan includes three strategic focuses to fuel growth.

First, the company plans to introduce both new and upgraded existing products. Then, Lulu is working to upgrade its guest experience across all channels. And lastly, it plans to take advantage of international growth.

Despite the exceptional growth and plan to double sales in the next five years, LULU stock is down 22% YTD.

Will LULU Stock Bounce Back?

Lululemon’s strong performance in the first quarter shows the company is doing all the right things. Above all else, consumers continue spending money on the brand.

Even with the difficult economic environment, Lulu believes it will keep pace. And I don’t doubt their ability to hit their goals.

Yet this year’s issue with LULU stock will be with market weakness. Even the most profitable companies are selling off right now, and Lululemon stock is no different.

That being said, Lulu is one of the most attractive growth stocks over the next five years as its strategy unfolds. With a rock-solid balance sheet, and growing brand awareness, the company is well-positioned to grow.

Even though LULU stock is down 40% from its ATHs, it’s still trading at a premium compared to peers.

For example, LULU has a forward P/E of 29 compared to Nike (NYSE: NKE) at 23. Yet when including growth, the PEG ratio shows a different story.

The PEG for LULU shares is around 1.49 compared to Nike at 1.74. On top of this, Lulu has higher margins with less debt.

Other LULU Stock News

Lululemon’s earnings report is the biggest LULU stock news currently. But the company is expanding into new high potential markets.

1. New Footwear Collection – Lulu is entering the footwear market with four new women’s styles this year. Additionally, men’s footwear will launch in 2023.
2. Mirror Acquisition – Last year, Lulu announced it was buying the fitness tech company Mirror. Mirror is an at-home workout piece offering fitness classes and personal training on demand.

So far, the company is aggressively expanding by entering high growth market opportunities.

Is LULU Stock a Buy

Lululemon outperformed the competition through the pandemic while boosting online sales.

With new challenges ahead, it may run into few hurdles. But Lulu is already proving it can handle it, coming out of the pandemic a stronger business.

The brand has several opportunities it can take advantage of to maintain its growth. As I have shown, the lifestyle brand is innovating and expanding into new markets with success.

The trend shows that high-income spenders are still spending, with premium retailers shining. At the same time, low-income spenders are changing habits.

Lululemon’s connection to consumers and pricing power is helping them overcome these challenges thus far. Moreover, Lulu is becoming a digital powerhouse with a three-year CAGR growth of 51%. Digital sales now make 45% of total revenue.

Despite a few short-term challenges, Lulu has the inventory and team to overcome them. LULU stock looks to be a solid investment with growing brand potential in the long run. Yet if retailers continue seeing pressure, LULU might see short-term selling pressure.