Lululemon (LULU) Crushed Christmas

Just over a month ago we deemed Lululemon (LULU) an early Holiday winner. Web visits were rising at a nice clip as consumers prioritized high-end brands with very intentional shopping.

Now that all gifts have been opened, it's the perfect time to check back in.

First: if you played LULU to the upside in early December, congrats! The stock is up +17% since our early note.

More importantly: our conviction holds. Web visits finished the season strong, peaking during Black Friday shopping where digital traffic trended +71% higher YoY as the company experienced its highest-ever traffic on Black Friday, drawing the most visits to its Shop app and e-commerce site.

An industry wide comparison including high-end labels and athleisure names shows a clear divide in winners and losers.

Exclusive, popular brands like Aritzia, Hoka, and Lululemon logged double digit YoY growth in traffic. In contrast, used-to-be-cool brands like Nike continue to slide.

In the third quarter, the company opened 28 new company-operated stores, including 14 acquired through the Mexico operations acquisition, bringing the total to 749 stores.

However, brands like Vuori and Alo intensified competition by expanding aggressively, placing 90% of Vuori stores and 84% of Alo stores within half a mile of Lululemon locations across the United States.

Data suggests fears may be a bit overblown. Despite rising competition, Lululemon is posting solid growth.

Lululemon also benefited from macro gift giving trends in 2024 that favored apparel and accessories like its viral belt bag.

Bottom line: LULU stock turned a corner in August and we believe rightfully so.

Shares remain -17% lower than they were a year ago, so it is still trading at a discount.

Looking ahead we are expecting a strong Q4 report and are watching for international expansion.

Lululemon's China sales grew 39% year-over-year in Q3, exceeding $1 billion for the first time, driven by expansion into lower-tier cities. Total international sales grew 29% YoY.

Other Western brands in China lowered prices to attract customers, but Lululemon raised prices by 20% compared to the US, with consumers still clamoring for RMB 4000 ($565) jackets and RMB 850 ($120) leggings.

Lululemon is now the third-largest foreign sportswear brand in China, behind Nike and adidas.

We see continued gains from here.