Lululemon Profits: How the chain doubled store volumes as online sales grew

It was never a question of whether lululemon athletics (NASDAQ: LULU) would signal a rebound in sales in the first quarter last week. The clothing chain was facing a period of a year ago that included some of the most intense lockdown weeks in the pandemic. A year later, his rebound was definitely strong.

But Lululemon recently announced some head-turning measures, including a more than 100% increase in in-store revenue. Its digital sales channel has generated even more gains to put the company on track for an even brighter year 2021 than executives predicted just a few months ago.

Image source: Getty Images.

Sales explode

Lululemon saw a 106% increase in sales in its stores, which is understandable given that many of its stores were either closed or were operating at significantly reduced capacity in early 2020. Yet that rebound came then even as the digital sales channel continued to grow, with sales up 55%. Lululemon saw more business in its e-commerce segment than in its brick-and-mortar stores, which helped increase overall revenue by 88%. Investors were looking for a much more modest 70% increase.

Executives have removed some of the noise from the pandemic by releasing two-year growth figures. Lululemon sales are up 57% from the same period two years ago, which equates to a compound annual expansion rate of 25%. “Our strong performance across all categories, channels and geographies,” CEO Calvin McDonald said in a press release, “demonstrates the momentum and strength of lululemon as we move to the new normal”.

Double the profits

Gross profit more than doubled to $ 700 million as the company largely avoided the type of supply chain issues that had arisen. Nike early 2021. Margins increase due to the combination of increased sales and a shift in demand towards high-end sports products.

The story of profitability, however, is not as positive as the rebound in demand. The operating margin has been roughly stable over the past two years as gross margin gains have been offset by additional expenses in areas such as e-commerce execution, shipping and labor. ‘artwork.

Still, investors must be happy to see adjusted earnings soar to $ 1.16 per share in the first quarter, from $ 0.23 a year ago. “Our strong financial position,” said CFO Meghan Frank, “allows us to continue to deliver our … growth strategies while taking advantage of short and long term opportunities.”

Look ahead

This short term becomes brighter. Lululemon now sees its sales hovering between $ 5.8 billion and $ 5.9 billion in 2021. Three months ago, executives were targeting $ 5.6 billion in sales. The clothing giant also has several major growth levers it can pull over the next few years, including its international expansion and a push towards new demographics like menswear. Executives are excited about the opportunity offered by seasonal pop-up stores and the accelerating pace of new product launches.

These enticing trends all suggest that Lululemon may just begin to grow in early 2021. The chain can now reasonably aim for $ 6 billion in annual sales just two years after breaking the $ 4 billion mark in 2019.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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David A. Albanese