Lululemon Athletica saw net revenue in the fourth quarter increase 24 percent to $1.7 billion, topping Wall Street estimates of $1.66 billion largely in thanks to the brand’s increasing influence overseas. While net revenue boosted 21 percent in North America, international sales jumped a much greater 47 percent.
With digital more than doubling in 2020, and growing 94 percent in the fourth quarter to $900 million, Lululemon achieved its 2023 goal of doubling e-commerce revenue from 2018 levels a full three years ahead of schedule.
In a Nutshell: While e-commerce may have been the star of 2020 for Lululemon and many other brands, the athleticwear and athleisure seller known for its leggings and yoga pants is furthering expansion efforts in the physical side of the business.
After opening 30 net new stores in 2020 to end with 521 locations, Lululemon expects to open between 40 and 50 net new company-operated stores in 2021. The increase represents a square-footage percentage increase in the “low double digits,” according to CEO Calvin McDonald in an earnings call. The openings will include approximately 30 to 35 stores in international markets, including 15 to 20 in China.
Inventories at the end of 2020 increased by 25 percent to $647.2 million compared to $518.5 million at the end of 2019.
“While we are seeing some delayed inventory receipts due to the issues at the ports, we are comfortable with the level and composition of our inventory, and we are positioned well as we enter the spring season,” chief financial officer Meghan Frank said in the call.
Gross profit for the fourth quarter increased 25 percent to $1.0 billion, and gross margin increased 60 basis points (0.6 percentage points) to 58.6 percent.
Women’s revenue outperformed men’s in the quarter at a pace of 19 percent to 17 percent. For the full year, broad-based trends across all major merchandise categories—women, men and accessories—saw high-teens revenue growth. Outerwear, shorts, bras, underwear and equipment were particularly strong, all experiencing revenue growth “in excess of the high-teens.”
McDonald pointed out that despite the casualization throughout apparel, Lululemon’s performance-designed products actually represented approximately 67 percent of the company’s total merchandise mix in 2020, which was a four-point increase in penetration from the previous year.
Thus far, in the first quarter, Lululemon launched two new franchises for men’s tops. The “Fundamental Top,” designed for hikes, runs and cross-training, is composed of stretchy, abrasion-resistance, anti-smell and quick dry fabric. The DrySense training assortment offers moisture wicking and additional technical features, including underarm gussets for increased mobility, a locker loop for easy hanging and a fully recycled polyester component.
On the women’s side, the company is launching items across major categories of running, training, yoga and “on the move.” Pants in Lululemon’s Align franchise now include pockets for both long and short styles, and the “responses to launch have been fantastic,” according to Sun Choe, chief product officer at the Vancouver-based company.
Lululemon also recently launched Swift Speed running tights made from the company’s proprietary Luxtreme fabric, which is designed to offer low friction, be breathable, wick sweat and keep cool. Later this year, the brand is launching a new high support bra for “running and beyond” made with the company’s proprietary Ultralu fabric and developed by measuring customers’ unique movement profiles.
Finally, Choe revealed Lululemon will launch a special accessories capsule featuring Mylo, “an infinitely renewable mycelium that highlights the role sustainable innovation can play in the future of fashion and retail.”
Lululemon ended 2020 with $1.2 billion in cash and cash equivalents, compared to $1.1 billion at the end of 2019. It had $397.6 million of capacity under its committed revolving credit facility at the end of the year.
The retailer projects first quarter revenue to be in the range of $1.10 billion to $1.13 billion, with diluted earnings per share expected to be between 81 cents to 85 cents. Additionally, the company expects gross margin in the first quarter to increase significantly from last year’s Covid-impacted quarter, and also be 50 to 100 basis points higher than the first quarter of 2019, according to Frank.
“Our first quarter guidance reflects pressure from air freight costs due to port congestion and capacity constraints. We are strategically using air freight to ensure we are able to meet guest demand,” Frank said in the call.
For 2021, Lululemon expects net revenue to be between $5.55 billion and $5.65 billion, which implies a two-year compound annual growth rate (CAGR) of 19 percent at the midpoint of the range. Diluted earnings per share are expected to be in the range of $6.10 to $6.25 for the year.
Net sales: Fourth-quarter net revenue increased 24 percent to $1.7 billion from $1.4 billion, and jumped 22 percent on a constant-dollar basis. In North America, net revenue increased 21 percent, while the jump was much more pronounced overseas at 47 percent internationally.
Total comparable sales increased 21 percent, or 20 percent on a constant-dollar basis.
Direct-to-consumer net revenue (online revenue) increased 94 percent to $900 million, or 92 percent on a constant-dollar basis. Overall, e-commerce represented 52 percent of total net revenue, significantly larger than the 33 percent for the fourth quarter of 2019.
Full-year net revenue increased 11 percent to $4.4 billion from $4 billion, and increased 10 percent on a constant-dollar basis. Net revenue jumped 8 percent in North America and increased 31 percent internationally.
Direct to consumer net revenue for 2020 increased 101 percent, both on a reported and on a constant-dollar basis. Company-operated store net revenue decreased 34 percent.
Net earnings: Net income for the fourth quarter came out to $329.8 million, a 10.6 percent increase over the year-ago period’s $298 million profit. Diluted earnings per share were $2.52 compared to the $2.28 in the 2019 fourth quarter. Adjusted diluted earnings per share for the fourth quarter of 2020 were $2.58.
Income from operations increased 10 percent to $457.9 million, while adjusted income from operations increased 12 percent to $465.7 million.
Total net income for all of 2020 declined 8.8 percent to $588.9 million from $645.6 million the year prior. Diluted earnings per share were $4.50 compared to $4.93 in 2019. Adjusted diluted earnings per share were $4.70 in 2020.
Income from operations decreased 8 percent to $820 million for the full 2020. Adjusted income from operations decreased 4 percent to $849.8 million.
CEO’s Take: McDonald highlighted Lululemon’s product innovation capabilities such as the relaunch of the company’s Everlux fabric and the recent DrySense launch, as well as the company’s continued growth in the activewear space.
“We will continue to strengthen our pipeline of innovation in 2021 and beyond,” McDonald said. “We gained market share over the course of the fiscal year, as indicated by our nearly one point gain in retailer market share of the adult activewear market in the U.S., according to NPD Group’s Consumer Tracking service. This was our largest annual share gain in recent history, and was driven by gains in both men and women.”