Magic Markets #141: Lululemon and Ulta Beauty

Welcome to episode 141 of Magic Markets. In this episode, we dug through the latest earnings transcripts of two intriguing global companies: Lululemon and Ulta Beauty.

Lululemon, the pioneer of athleisure, is known for its premium yoga pants and impressive growth. Back in April 2022, we discussed this stock when it was trading around $377, and we were concerned about lofty valuations back then. After correcting to levels we liked by the time of our recap in December 2022, the stock rebounded strongly.

The recent Q2 results showcased impressive revenue growth at 18%, surpassing expectations. Lululemon's strong direct-to-consumer sales at 40% of total revenue demonstrate the strength of the brand and its resilience in the affluent market.

Ulta Beauty, often compared to South Africa's Clicks, offers a range of health and beauty products. Their strategy includes store expansion through partnerships, like the 62 Ulta Beauty at Target shops that they opened in a single quarter. However, post-pandemic, the makeup category has seen slower growth, while hair salons and services have thrived.

Both companies boast robust gross margins, with Lululemon at 58.8% and Ulta Beauty benefiting from the lucrative health and beauty categories. It all looks good on paper – but will these companies keep riding the wave, or end up splashing in the shallows?

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