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Lululemon Will Start Raising Prices in Q2

Lululemon Athletica Inc., the Canadian seller of yoga apparel and related activewear products, earned $6 billion in revenue for the fiscal year ended Jan. 30, 2022 and reported hefty profits Tuesday after launching its first women’s running shoe this month.

The Blissfeel is the Vancouver-based company’s first step into footwear. Lululemon plans to release three other footwear silhouettes this year as part of the four-piece shoe collection and roll out a men’s shoe collection in 2023.

The company is also absorbing the revenues from Mirror, a digital fitness startup it bought in 2020 for $500 million and prompted a lawsuit from Nike earlier this year.

These two new directions, away from apparel, have some retail analysts concerned it might stretch the company too far and not concentrate on its core products. Randy Konik, a retail analyst with Jefferies & Co., noted that when Under Armour first detoured away from apparel into footwear, the company’s revenue growth suffered because it diluted its focus on shirts and shorts.

“We believe that lack of focus on [Lululemon’s] plate could create some issues of execution as we go into the back part of 2022,” Konik told CNBC’s “Closing Bell” hosts Tuesday.

Lululemon Blissfeel
Lululemon Blissfeel Courtesy

In a Nutshell: CEO Calvin McDonald told Wall Street analysts that Lululemon has benefited from several consumer trends that uniquely position it in the marketplace.

In general, athletic clothing continues to outpace growth in overall apparel. Versatile clothing is a popular category as consumers keep up their fitness routines and are active in their everyday lives.

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As much as people have touted the benefits of e-commerce sales, store sales have been strong, which plays up to Lululemon opening 53 net new stores last year.

The company has experienced the same logistics problems as its peers have in trying to transport their goods from top sourcing areas to North America. “We continue to experience delays across our global network, particularly related to transporting our product via ocean freight. As a result, we continue to lean more heavily into air freight,” McDonald said on the company’s fourth-quarter earnings conference call.

Lululemon has implemented several strategies to deal with this problem. Because the company’s core seasonless products make up 45 percent of inventory, it can fulfill customers’ demands with already stocked inventory.

With freight costs up, Lululemon is looking at price increases this year on a small portion of its styles, but the company will also monitor its peers’ price ranges to stay competitive. An uptick in prices will probably affect 10 percent of the product and start sometime in the second quarter.

During fiscal 2021, the company doubled its men’s wear business and is aiming to quadruple its international business by the end of 2022.

New programs launched last year include Lululemon Like New, which lets customers drop off old Lululemon garments at 80 participating stores in California and Texas. They are recycled and sold on the company’s resale website.

The company also introduced a limited-edition Earth Dye collection, partnering with Genomatica to create a plant-based alternative to nylon. The company’s goal it to have all its products made with sustainable materials and have end-of-life solutions by 2030.

Lululemon will introduce new silhouettes in the Scuba and Define collections. As workers return to offices, designers in the company will be expanding the On the Move collection, with new casual styles of tops and bottoms for men and women.

Branching out to other sports, Lululemon will be rolling out its first golf collection soon, after recently introducing its tennis collection.

Holiday sales in December got off to a good start, but then the Omicron variant put a damper on retail traffic with the company having to reduce some store hours. By mid-January, traffic began to improve and continued to be strong in the first quarter of 2022.

Net sales: For the fourth quarter ending Jan. 30, 2022, net revenue increased 23 percent to $2.1 billion. North America’s net revenues inched up 21 percent while global sales outside of North America rose 35 percent.

While direct-to-consumer sales in the fourth quarter made up 49 percent of total net revenues, the result marked a slight dip compared with 52 percent of total net revenues from the previous fourth quarter.

Same-store sales during the quarter jumped 32 percent while direct-to-consumer sales improved 16 percent. Gross profit rose 22 percent to $1.2 billion, but gross margin declined 0.50 percent to 58.1 percent.

Diluted earnings per share were $3.36, up from $2.52 in the previous fourth quarter.

For fiscal 2021, Lululemon saw its net revenue skyrocket 42 percent to $6.3 billion. Looking closer, North America’s revenue grew 40 percent while sales outside of that region rose 53 percent. Direct-to-consumer net revenue represented 44 percent of the total in 2021 compared with 52 percent in 2020. Company operated store net revenue grew 70 percent over the previous year.

Diluted earnings per share increased to $7.49 from $4.50 in 2020.

Looking at sales before the Covid pandemic began in early 2020, Lululemon said that net revenue in 2021 grew $2.3 billion over 2019, for a two-year compound annual growth rate of 25 percent.

Net earnings: For the fourth quarter of 2021, net income totaled $434.5 million, up from $329.8 million the previous quarter. In the fourth quarter of 2019, it totaled $298 million.

For fiscal 2021, net income hit $975.3 million, up considerably from $589.9 million in 2020 and $645.6 million in 2019.

CEO’s Take: “The majority of our growth will continue to come from core,” McDonald said. “We’re early innings on in growth across all our growth levers, which starts with product. That is core within men’s and that’s core within women’s. That includes obviously the strength in our bottoms business and our core activities that we’ve identified as run, yoga, train and On the Move where we still have opportunity to keep innovating and developing.”

“Then you factor in the growth potential area of our channels, be it digital, stores and then our regions,” McDonald added. “These are the drivers of the business.”