Lululemon Athletica Inc. (LULU): The Best Luxury Stock Now According to Analysts?

We recently compiled a list of the Top 10 Luxury Stocks According to Analysts. In this article, we are going to take a look at where Lululemon Athletica Inc. (NASDAQ:LULU) stands against the other luxury stocks.

The luxury retail industry is facing significant challenges, with major brands like Burberry, Hugo Boss, and Gucci experiencing substantial drops in their profits. The decline in luxury sales, especially in Asia and the Americas, has been a major concern, with Burberry and Hugo Boss seeing notable decreases in their revenue. Other brands such as Richemont and Swatch have also reported significant downturns in sales, particularly in China. The overall luxury market index has seen a sharp decline, which indicates widespread struggles in the sector.

Luxury brands have traditionally relied heavily on Chinese consumers, who have contributed significantly to their growth. However, the slowing Chinese economy and a cautious consumer base have led to reduced spending on luxury goods. The economic slowdown in China is attributed to factors such as lower land sales, an aging population, and decreased exports.

Despite the challenges, some brands made significant strides such as the Italian high fashion women's clothing and accessory brand, Miu Miu, which saw a nearly 60% growth last year and a 90% growth in the first quarter of this year. This helped its parent company, Prada Group, increase its sales as well.

The luxury market has historically bounced back from downturns, and many in the industry hope that the current challenges are temporary. However, the recent performance has reminded the sector that luxury items are not immune to economic challenges, and consumer demand can fluctuate based on economic conditions and consumer confidence. Nevertheless, luxury brands are comparatively less affected by the economic conditions as most of their purchases are made by a very small group of elite consumers. You can also read our article on Top 11 Luxury Clothing Stocks to Invest in Now, where we discussed luxury consumer behavior in detail.

Our Methodology

For this article, we made a list of nearly 20 luxury stocks with at least Moderate Buy ratings according to analysts and narrowed our list to 10 stocks with the highest average analyst price target, as of August 5. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds as of Q1 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A store employee in an athletic apparel store restocking merchandise.

Lululemon Athletica Inc. (NASDAQ:LULU)

Average Price Target Upside as of August 5: 54.24%

Number of Hedge Fund Holders: 51

Lululemon Athletica Inc. (NASDAQ:LULU) is a distributor and retailer of luxury athletic apparel, footwear, and accessories through the Lululemon brand for women and men. The company has more than 711 retail stores worldwide, with a significant footprint in North America and a growing international presence in markets like the UK, Germany, China, and Australia. The company operates through brick-and-mortar stores, which serve as community hubs, and its e-commerce platform allows customers to shop the brand's full product range online.

Among 38 analysts that have covered Lululemon Athletica (NASDAQ:LULU), the average price target of $360.00 represents an upside of 54.24% to the current stock price, as of August 5. Furthermore, the stock was held by 51 hedge funds in the first quarter and the stakes amounted to $843 million. GLG Partners is the top shareholder of the company and has a position worth $182.88 million as of Q1.

Lululemon (NASDAQ:LULU) presents a compelling case for investment driven by its steady growth trajectory and strong market position. The company's expansion strategy remains focused and effective, as can be seen by its consistent store openings and geographical diversification.

As of the first quarter, Lululemon operates 711 stores worldwide, which reflects a 14% increase in square footage compared to the previous year, with 49 net new stores added since Q1 2023. A highlight is the company's strong performance in international markets, particularly in China Mainland where revenue surged by 52% in constant currency terms in Q1. The growth is a sign of Lululemon's (NASDAQ:LULU) ability to resonate with diverse consumer bases across different regions.

During the Q1 2025 earnings call, CEO Calvin McDonald emphasized the significant untapped potential in international markets and suggested that non-North American operations could eventually contribute up to 50% of the company's revenue.

Looking ahead to 2024, Lululemon (NASDAQ:LULU) remains committed to expanding its footprint and is targeting the opening of 35 to 40 net new stores. The expansion includes a strategic focus on both domestic and international markets, with plans to open five to 10 stores in the Americas and the remainder in key growth regions such as China Mainland. Such initiatives are expected to drive low-double-digit growth in square footage, reinforcing the company's commitment to enhancing its retail presence.

Aside from physical retail, Lululemon (NASDAQ:LULU) continues to leverage its digital capabilities to grow sales and customer engagement. The company stands out as an attractive investment opportunity driven by its compelling growth prospects, expanding global footprint, and strong brand presence across diverse markets.

Ithaka US Growth Strategy stated the following regarding Lululemon Athletica Inc. (NASDAQ:LULU) in its first quarter 2024 investor letter:

“Lululemon Athletica Inc. (NASDAQ:LULU) is principally a designer, distributor, and retailer of healthy lifestyle inspired athletic apparel. It‘s moat is almost entirely based on its intangible brand asset. Of late, the company has benefited from both the longstanding athleisure fashion trend and the more recent pandemic-induced, work-from-home trend toward more casual attire. Approximately 45% of sales are generated across ~700 company-owned stores, 45% of sales (and growing rapidly) are generated online (lululemon.com), and ~10% of sales are generated by wholesale partners, which primarily comprise fitness studios. The stock’s underperformance was concentrated around the F4Q earnings announcement, which saw the company meet expectations for the current quarter but provide cautious commentary regarding tepid US consumer spending behavior.”

Overall LULU ranks 4th on our list of the best luxury stocks to buy. You can visit Top 10 Luxury Stocks According to Analysts to see the other luxury stocks that are on hedge funds’ radar. While we acknowledge the potential of LULU as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LULU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.