Lululemon Athletica reported first-quarter revenue that fell short of Wall Street expectations amid a 17 percent decline to a shade below $652 million, but a robust online offering saw e-commerce revenues skyrocket 68 percent as stay-at-home shoppers flocked to the brand known most for its yoga pants and loungewear.
As of June 10, 295 of Lululemon’s 489 company-operated stores are open.
In a Nutshell: Even in the midst of the COVID-19 pandemic, Lululemon remains confident in the long-term growth opportunities and its “Power of Three” growth plan, whose three pillars include product innovation, omnichannel guest experiences and market expansion.
As is the case with many retailers throughout the crisis, Lululemon is not providing a detailed financial guidance for fiscal 2020. With no debt, Lululemon is still in very healthy shape. As of May 3, Lululemon had $823 million in cash and cash equivalents, well ahead of the $576.2 million it reported last year. Under its revolving credit facility, the company can borrow as much as $398.2 million.
While many retailers cancelled or delayed orders or deferred payments to their vendors as the pandemic spread, Lululemon did not buckle to the surrounding pressure on the market, committing to pay in full for all orders, both completed and in production. With that in mind, inventories at the end of the first quarter increased 41 percent to $625.8 million compared to $443 million last year.
In February, Lululemon temporarily closed all of its retail locations in Mainland China, all of which have since reopened. In March, it temporarily closed all of its retail locations in North America, Europe, and certain countries in the Asia Pacific region. After May 3, 2020, the company began reopening its retail locations in these markets in line with guidance from local authorities.
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The 295 open stores as well as the company’s distribution centers are operating with precautionary measures in place such as reduced operating hours, physical distancing, enhanced cleaning and sanitation, and maximum occupancy levels.
Stores are keeping every other fitting room closed in this new layout, putting more distance between customers without limiting the shopping experience. The retailer has been steering customers toward cashless and contactless tap-and-go payments at checkout to further limit unnecessary contact. Select stores offer same-day pickup for orders placed online.
In-store classes and events remain canceled for the foreseeable future. In March, the company launched its first Digital Sweatlife workout sessions, reaching more than 72 million guests through an online hub, with all of the content featuring Lululemon ambassadors. The sessions were held five days a week through May 10.
Net Sales: Total revenue for the first quarter fell 17 percent to just under $652 million from $782.3 million a year ago. Revenue fell short of Refinitiv analyst estimates of $688.4 million.
The company said its e-commerce sales totaled $352 million, making up 54 percent of total revenue, compared with $209.8 million, or 26.8 percent of total revenue, a year ago.
The company did not release comparable store sales for the quarter, stating that “total comparable sales and comparable store sales are not currently representative of the underlying trends of its business.” Lululemon also said it does not believe these metrics are currently useful to investors in understanding financial performance.
Earnings: Despite the chaos brought by COVID-19, Lululemon remained in the black for the quarter, posting a net income of $28.6 million, compared with $96.6 million in the same period last year. Earnings per share were 22 cents compared to 74 percent in last year’s quarter, and only a cent off Refinitiv estimates of 23 cents per share.
Gross profit was $334.4 million, a decrease of 21 percent compared to the first quarter of fiscal 2019, while operating income plunged 75 percent to $32.8 million.
Gross margin fell to 51.3 percent of net revenue, compared with 53.9 percent a year ago, with the retailer attributing the decline in part to higher costs to run its distribution centers as online orders surged.
CEO’s Take: “I’m proud of how Lululemon has navigated these unexpected and unprecedented times,” said Calvin McDonald, Lululemon CEO. “We are learning more every day about our guests—how they enjoy interacting with us online and what makes them comfortable as stores reopen. Our strong digital business demonstrates the strength of our guest connection and the long-term opportunity to create further omni experiences going forward.”