We recently published a list of The 7 best fitness and gym stocks to buy. In this article, we take a look at how Lululemon Athletica Inc. (NASDAQ:LULU) compares to other fitness and gym stocks.
The fitness industry: An analysis
The global wellness market has reached a staggering $1.8 trillion, according to McKinsey. In the US alone, the industry has reached a value of $480 billion. 82% of US consumers consider wellness a top priority, while in the UK and China, the figures are 73% and 87% respectively.
According to Scott Max, gym memberships account for nearly half of the fitness industry. Of these, 45% of members are millennials, while 35% are Gen Z. Despite these numbers, today’s fitness industry is more responsive to the needs of Gen Z. Brands are competing to capture their preferences and behavior. According to NielsenIQ (NIQ) and World Data Lab (WDL), global fitness spending by Gen Z is expected to reach $12 trillion by 2030.
With such impressions, Generation Z is referred to as “Generation Active.” According to Les Mills, 36% of Generation Z are active, while 30% use fitness facilities. 82% of these are members of gyms or studios, with 72% taking a hybrid approach, exercising both in and outside the gym.
COVID-19 caused many gyms to close, but post-pandemic, people are interested again. Fitness marketplaces like Mindbody ClassPass are currently thriving by connecting consumers with studios, gyms, and other wellness providers. It is a subscription-based platform that allows users to access a variety of fitness experiences with a single membership.
The fitness industry is also seeing new IPOs. According to Reuters, CEO Fritz Lanman announced that Mindbody ClassPass plans to go public in the next 12 to 18 months, with Goldman Sachs as its lead banker. The money from the IPO will be used for share buybacks and buying other companies. ClassPass, which was acquired by MindBody in 2021, is 65% larger than it was pre-Covid, according to Lanman. The overall MindBody ClassPass company is expected to achieve 20% revenue growth (about $500 million) by 2024.
Good physical strength is linked to mental wellbeing. Brands can capitalize on this focus on physical and mental health and use platforms like TikTok to connect with them and offer engaging content. This is especially important for Gen Z as they spend more time on their phones compared to other generations, creating opportunities for personalized training and flexible hybrid training options.
According to Exercise, fitness apps are expected to grow 21% over the next 5 years. The growing trend of fitness influencers has also had a positive impact on consumers’ wellness and health intentions. Fitness posts have one of the highest engagement rates on Instagram (~3%).
Whether you’re Gen Z or not, hyper-personalization trends are changing the way consumers approach health and wellness. As technology advances, people are looking for customized workouts for their bodies. This shift through apps, wearables, and personalized workout plans creates both opportunities and challenges for fitness brands.
Bryan O’Rourke, president of the Fitness Industry Technology Council, said providing a tailored engagement experience is critical to retaining members, especially among Generation Z. Gym members are willing to pay more for a high-quality, personalized experience, which continues to drive the growth of boutique studios and small group training.
According to a McKinsey survey of more than 5,000 consumers, AI is a key driver of personalized products and services, where people use biometrics and AI to create customized health plans and recommendations. Companies that can offer such services affordably and with clear insights are poised for success.
The future of wellness is based on science, personalization and a deep understanding of consumer needs. With the proliferation of weight loss drugs like Ozempic, a collapse in fitness markets was expected. However, Bahram Akradi, Chairman and CEO of Life Time, says such drugs only make it easier for people to start exercising. According to Les Mills, 50% of Gen Z want to exercise regularly but struggle to start. The availability of Ozempic could see this generation surpass Millennials in gym memberships.
Consumers worldwide are currently turning away from unhealthy lifestyles. Investing in fitness stocks presents an attractive opportunity for those looking to capitalize on the growing trend of personalized health solutions. With that in mind, let’s look at the 7 best fitness and gym stocks you can buy now.
Our methodology
To compile our list, we combed through ETFs and online rankings and compiled a list of 12 fitness stocks. We then selected the 7 stocks that were most popular among elite hedge funds and that analysts were bullish on. The stocks are sorted in ascending order by the number of hedge funds that hold shares in them (as of Q2 2024).
At Insider Monkey, we’re obsessed with the stocks hedge funds invest in. The reason is simple: Our research shows we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (more details can be found here).
A store clerk in a sportswear store replenishes her inventory.
Lululemon Athletica Inc. (NASDAQ:LULU)
Number of hedge fund owners: 45
Lululemon Athletica Inc. (NASDAQ:LULU) is an American-Canadian multinational corporation. It began as a yoga clothing retailer but soon expanded its offerings to other technical athletic apparel, lifestyle clothing, footwear, and accessories and operates 711 stores worldwide. In addition to direct B2C e-commerce and in-store sales, Lululemon Athletica Inc. (NASDAQ:LULU) sells through wholesale distribution, warehouses, showrooms, franchises, and temporary locations.
Lululemon Athletica Inc. (NASDAQ:LULU) international sales (~21% of total sales) are growing as the company expands its global presence. In the first quarter of 2024, the company’s international sales increased 40% year-over-year, led by China sales, which increased 52% year-over-year. In addition, international comparable-store sales increased 29% and China comparable-store sales increased 33% year-over-year.
However, the company’s biggest market, America, is seeing stagnant sales due to problems with bags, clothing sizes and a limited color range. American sales grew only 4% in the quarter. Analysts believe the company is losing its brand power due to inflation and changing consumer preferences.
Lululemon Athletica (NASDAQ:LULU) is entering international markets to meet these challenges. On May 16, Bloomberg reported that the company will acquire its franchise partner in Mexico, giving it direct ownership of 15 stores. Since the first quarter of 2023, the company has opened 49 new stores.
The company managed inventory levels and avoided overproduction during the quarter. In the first quarter of 2024, inventory levels fell to $1.3 billion from $1.6 billion in the year-ago quarter. This resulted in revenue increasing 10.4% year-over-year to $2.21 billion and earnings per share of $2.54, above analyst estimates of $0.14.
Lululemon Athletica (NASDAQ:LULU) is growing through innovative product launches. By fall 2024, the company will launch a new line of women’s running apparel and accessories in collaboration with a team of ultramarathon runners. The company will also increase its focus on men’s workout and golf apparel.
Lululemon Athletica’s (NASDAQ:LULU) entry into the men’s segment since 2014 has been a success. The company expects to grow its total business to $12.5 billion by 2026 by doubling its men’s segment and quadrupling international sales compared to 2021. The company also launched its first men’s shoes in February 2024, capitalizing on the men’s market. In the first quarter of 2024, sales of women’s shoes increased 10%, men’s shoes increased 15%, and accessories increased 2%.
Middle Coast Investing announced the following on Lululemon Athletica Inc. (NASDAQ:LULU) in its Q2 2024 Investor letter:
“I mentioned last quarter and above that I like to buy quality stocks on offer. Lululemon Athletica Inc. Lululemon Corp. (NASDAQ:LULU), the second-worst performer in the S&P 500 this year, qualifies. I published a full thesis on the stock before its recent earnings, but the basics: The yoga pants and apparel company has had an amazing post-pandemic run that is coming to an end. Its growth in the U.S. is currently slow/nonexistent, but it is growing very quickly in China and Europe. I think international growth is likely to continue and that the slowdown in the U.S. is likely temporary. Lululemon stock is not “cheap,” but it sells at an average price, and I think the company will grow at an above-average rate over the next five years. I would be wrong if Lululemon is a fad that went bust, or is experiencing a huge post-pandemic hangover as people get used to leaving the house more often. We’ll see.”
Overall LULU 2nd place on our list of the best fitness and gym stocks to buy. While we recognize LULU’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than LULU but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
