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Lululemon’s Strong Q4 Was Helped by Supply Chain Investments

Lululemon Athletica Inc. appears to have all engines firing as the company said it saw broad-based strength in the fourth quarter in guest engagement, product assortment, international and the digital components of its business.

In a Nutshell: The Vancouver, British Columbia-based yoga brand posted a very good fourth quarter, helped by strategic investments that supported its digital expansion and supply chain improvements. According to the company, the supply chain improvements helped both the top and bottom line.

“Together, these demonstrate the company’s ability to deliver on its strategic plans and maximize the considerable runway ahead,” a company spokeswoman said.

Calvin McDonald, chief executive officer, said, “Lululemon has delivered one of its strongest years yet, a result of broad-based strength across the business. I’m thrilled that we achieved several of our 2020 goals ahead of schedule…”

The brand has expanded its product line in office/travel/commute, outerwear and bra assortment, while men’s is one of its largest growth areas. It recently launched a membership loyalty program as a test in Denver, Colo. and Edmonton in Alberta, Canada, with plans to expand to other U.S. cities in the coming months.

Also on the agenda are new store formats to create different experiences for its brand loyalists. On the international front, key growth opportunities are in Asia and Europe. Lululemon said its e-commerce business in China was up over 140 percent in the fourth quarter, and that it also opened its first ever airport location in Hong Kong during the period. In Europe, the company opened a new store in Berlin during the quarter.

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Lululemon Beats on EPS Estimate Helped by Supply Chain Investments
Looks from Lululemon’s yoga apparel options. Courtesy Photo

In digital, Lululemon said site traffic grew more than 30 percent in the fourth quarter, while guest engagement “remains high as Lululemon continued to drive strong results in both new guest acquisition and email list growth, with increases of nearly 30 percent and 70 percent, respectively.”

Sales: The company said net revenues rose 25.7 percent to $1.17 billion from $928.8 million. Comparable sales rose 16 percent, with comparable store sales gaining 6 percent. Direct-to-consumer net revenue rose 37 percent.

Gross profit was up 28 percent to $668.6 million, Lululemon said, adding that gross margin was 57.3 percent, an increase of 100 basis points versus the same year-ago quarter. Income from operations was up 29 percent to $331.4 million, while operating margin was 28.4 percent, representing an increase of 80 basis point compared with the year-ago period.

Earnings: Net income for the three months ended Feb. 3 jumped 82.4 percent to $218.5 million, or $1.65 a diluted share, from $119.8 million, or 88 cents, a year ago. On an adjusted basis, diluted earnings per share was $1.85.

Wall Street was expecting diluted EPS of $1.74 on net sales of $1.15 billion.

For the year, net income jumped 87.0 percent to $483.8 million on a net revenue gain of 24.1 percent to $3.29 billion.

For the first quarter, the company said it expects net revenues in the range of $740 million to $750 million, based on a comparable sales gain in the low-double digits on a constant dollar basis. Diluted EPS was guided to between 68 cents and 70 cents.

For the full fiscal year, the company forecasted net revenues at between $3.70 billion to $3.74 billion, with diluted EPS between $4.48 and $4.55.

Separately, the company said its board has approved an additional stock repurchase program for up to $500 million of its common shares.

CEO’s Take: “We are energized to build upon our momentum and to seize the many opportunities ahead for Lululemon around the world,” McDonald said.