Lululemon Athletica Inc. continues to grow and gain momentum under the leadership of its chief executive officer Calvin McDonald.
In a Nutshell: The company’s second-quarter results showed a very healthy business for the yoga brand, and continued momentum is expected ahead. But if Lululemon can do it, why not many of its apparel brand counterparts?
According to McDonald, it’s because of the athletic sector’s success.
“The athletic space in general is very healthy relative to other sectors in both apparel and retail, in general,” McDonald offered as a first explanation for its growth in a challenged market. “Second, our business has fewer highs and lows relative to other apparel brands and we’re less dependent on seasonal fluctuations. And we have a very healthy core business that is driving our success.”
Lululemon has engineered growth based on a combination of factors that include compelling product, brand activations and using data analytics and digital marketing to develop the strengths within the business.
McDonald said women’s comps grew 13 percent as bottoms remain strong, driven by both pants and shorts. Men’s, a business the company has said it plans to double by the end of 2023, also saw strength in shorts. Men’s business comps grew 27 percent, with strength in both tops and bottoms.
In the quarter, the company introduced it latest Stronger as One collaboration with Barry’s. The dual gender collection is targeted to the type of workouts favored by those who attend Barry’s bootcamp classes. Fabrications used offer abrasion resistance, breathability and moisture wicking.
Lululemon has plans to expand its Lab product to 45 stores and online for fall. The Lab is a design concept space where in-house designers and sample makers create collections specific to the cities they are in, such as Vancouver and New York City. Later in the season, Lululemon will also launch waterproof wool in outerwear. “This fabric innovation will offer guests the warmth and texture they expect from wool, while keeping them dry as they spend time outdoors,” McDonald said.
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Celeste Burgoyne, executive vice president Americas and global guest innovation, said the company is on track to open 15 to 20 doors in North America. Two of those stores are upcoming, in New York City and Minneapolis at the Mall of America, the latter of which will be Lululemon’s second full experiential store.
When it comes to tariffs, Lululemon has had little impact to date.
Patrick “PJ” Guido, chief financial officer, told Wall Street analysts in a conference call that “direct exposure to China is relatively small with approximately 6 percent of our finished goods in the scope for U.S. tariffs. That percentage is down considerably, given how we have diversified our vendor base. We’ve never had more flexibility than we do today in our supply chain. So going forward, we do not expect it to be a big impact to the business.”
Net Sales: Lululemon said net revenue for the quarter ended Aug. 4 jumped 22.1 percent to $883.4 million, or 96 cents a diluted share, from $723.5 million, or 71 cents, a year ago. Comparable sales across channels rose 15 percent, while comparable store sales were up 10 percent.
The company said its direct-to-consumer net revenue rose 30 percent, representing 24.6 percent of total net revenue.
Gross profit for the quarter was up 23 percent, while gross margin was 55 percent, representing an increase of 20 basis points compared with the year-ago quarter.
Revenue from overseas continued to grow, with Europe up 35 percent and the Asia Pacific region rising 33 percent. The CEO said the company is on track to open 15 stores in China this year.
Earnings: Net income was up 30.5 percent to $125 million, or 96 cents, from $95.8 million, or 71 cents, a year ago.
Lululemon guided third quarter net revenue to the range of $880 million to $890 million, based on a total comparable sales increase in the low teens on a constant dollar basis. Diluted earnings per share are estimated 90 cents to 92 cents.
For the full year fiscal 2019, revenue is forecasted at between $3.80 billion to $3.84 billion, with total comparable sales rising in the low teens on a constant dollar basis. Diluted EPS is expected in the range of $4.63 to $4.70.
CEO’s Take: “We’re pleased with the ongoing strength across our business,” McDonald said. “We continue to make progress in delivering against our Power of Three growth pillars–product innovation, omni-guest experience, and market expansion. Our success demonstrates the significant runway in front of Lululemon and I’m grateful to our teams for bringing our vision to life.”