With Americans forced to exercise from home in 2020, Lululemon purchased the smart fitness platform Mirror for $500 million, hoping to get in on the at-home fitness craze propelling companies like Peloton and Tonal. In addition to a new line of business, the deal’s rationale was to drive more buyers of Lululemon clothing. It was the apparel company’s first major M&A transaction—but was ultimately a troubled one. Once the pandemic receded, Americans flocked back to their gyms and boutique fitness studios, leaving the digital fitness startup struggling to attract users. Since the acquisition, Lululemon has taken write-downs almost equal to Mirror’s price tag, meaning Mirror is now nearly worthless in accounting terms. (Media reports have said Lululemon is looking to sell Mirror. The company declined to comment.)

“The acquisition has not fully materialized as originally intended,” Lululemon CEO Calvin McDonald conceded to Wall Street analysts in March. But in a display of pragmatism, Lululemon rebranded the product as Lululemon Studio and is pivoting to focus on Mirror’s subscription app rather than the hardware. “We view Lululemon Studio in the same way we view any innovation. We test, we learn, and we evolve,” McDonald said. 

While Mirror has been a rare misstep under McDonald, the shift in strategy underscores a willingness to take risks and course correct quickly, which are qualities that have propelled the Vancouver-based company to the very top tier of sportswear brands, and now, for the first time, into the Fortune 500. The company placed at No. 461 in the newly released 2023 ranking on the strength of $8.1 billion in revenue last year. That’s nearly triple its revenue when McDonald took the helm in 2018, a success that doubled Lululemon’s stock price over the same period. 

And McDonald has big ambitions: He told investors in 2022 that he plans to hit $12.5 billion in revenue by 2026 as Lululemon becomes an ever more formidable rival to Nike and leaves competitors like Under Armour in its dust. “Our fundamental approach to innovation is through the lens of the guest and innovating unmet needs. We look to where we’re being pulled in versus pushing,” McDonald told Fortune last year.

Lululemon’s branding as a hip retailer targeting a wealthy clientele has been vital to its growth, hence why the company is credited with the invention of “athleisure,” at the intersection of good fit and high-quality fabrics. It’s slowly expanded into menswear and, more recently, golfing and hiking clothes. And it’s building brand loyalty through community, with moves such as in-store classes and running groups.

“They’ve managed to find the right combination of looking good but not having too much fashion and being strong with technical qualities [of garments],” says Stacey Widlitz, president of SW Retail Advisors.

Lululemon’s test-and-learn approach, and its resistance to the “analysis paralysis” that has slowed many other retailers’ adaption to new consumer tastes, have helped the brand boom. Lululemon’s performance contrasts with the sharp decline in sales in the past year at rival brands like Gap Inc.’s Athleta and despite the arrival of up-and-comers in the higher-end activewear space like Vuori, Rhone, and Alo Yoga.

“They have taken each new category, ticking them off one by one, and killed it,” Widlitz says. That’s precisely how Lululemon gained 2.3 percentage points of market share in the activewear category in late 2022, according to data from NPD Group.

One such category is menswear. After all, one cannot reach $12.5 billion in annual sales on women’s yoga pants alone. When Lululemon launched that business in earnest in 2014, it faced formidable odds as a brand closely associated with the $50 Pilates class, ladies of leisure set. Becoming a dual-gender brand is challenging, and sports retailers like Nike and Under Armourstill struggle to attract women shoppers as much as they do men. Nine years ago, Lululemon gingerly launched its sophomorically named “anti–ball crusher” (ABC) pants before expanding into shorts, shirts, and other activewear for men.

Now Lululemon’s men’s bottoms are everywhere, becoming standard wear for male office workers seeking comfortable but professional attire. And its running shorts are fixtures at marathons and gyms across the U.S.

Lululemon’s next foray into a risky category would further bring it into more direct competition with Nike: footwear, a product group where Lululemon has little history and which has a more complex production cycle and supply chain than apparel. “It’s a different animal. Footwear is much more complicated and harder to make money on,” says Marie Driscoll, managing director of Coresight Research’s luxury and retail practice.

Lululemon last year dipped its toes in the category by launching four women’s shoe styles. It has added more this year and will launch men’s shoes next year.

One thing that has analysts worried is whether Lululemon is chasing too many new categories at once. “They’ve pushed into so many categories and keep testing and pushing into new ones. They do it in a smart way, but it will be interesting to see how they manage that, because you can’t be all things to all people,” says Widlitz. “You can’t go deep in every category.”

Another big prong in McDonald’s plan is making Lululemon a global player. Canada, its home market, and the U.S. together generate 86% of its revenue. But Lululemon sees tremendous opportunities abroad, notably in the U.K. and China. “Lululemon has ample runway to quadruple its international sales, driven by outsized gains in China,” wrote Bloomberg Intelligence analyst Poonam Goyal in a research note. Last quarter, international sales rose 60%. Lululemon already has 100 stores in China, which generate 8% of global sales, and business has boomed after the country’s post-pandemic reopening.

Despite Lululemon’s upward trajectory, and even if the company hits McDonald’s 2026 revenue goal, the retailer will remain a fraction of the size of Nike, which Wall Street expects to ring in about $50 billion in sales this year. But Coresight’s Driscoll thinks Lululemon has what it takes to compete with Nike for dominance eventually.

“They’re becoming a global brand, and they have a very strong relationship with women and a growing relationship with men. There are some things Nike could learn from Lululemon,” she says.