Lululemon Exceeds Wall Avenue Expectations; Navigating retail headwinds – WWD

Lululemons Winning streak continues both on the square and on Wall Street.

The running and training categories continue to grow at Lululemon.
Courtesy photo

The Vancouver, BC-based sportswear, accessories and retailer announced earnings after the market closed on Thursday, improving sales and bottom line and updating its guidance. As a result, the company’s shares rose nearly 4 percent in after-hours trading.

“In the first quarter of 2022, continued momentum in the business allowed us to have a strong start to the year,” Lululemon Chief Executive Officer Calvin McDonald said in a statement. “These results provide a solid foundation as we begin our next five-year journey and fulfill our new Power of Three ×2 growth plan. I would like to thank our teams around the world for staying agile and continuing to perform at a high level to achieve our goals while successfully overcoming the challenges within the macro environment. We look forward to all that Lululemon has in store for us as we continue to build the brand.”

The Canadian company landed in New York in April to unveil its new five-year growth plan, which projects $12.5 billion in revenue by 2026, after hitting its earlier goals two years ahead of schedule.

In the last three months, Lululemon’s total revenue increased 32 percent to $1.6 billion from $1.2 billion a year earlier. Comparable sales for the first quarter increased 28 percent year over year, while comparable store sales increased 24 percent for the same period. Net revenue direct to consumers — which accounts for 45 percent of the company’s total revenue — increased 32 percent. Traffic in both stores and e-commerce increased 40 percent year over year in the quarter.

The company reported a profit of about $190 million as a result, up from about $145 million a year ago.

“Lululemon continues to deliver results that differentiate us from other retailers,” McDonald said on Thursday night’s conference call with analysts. “We are in early stages of growth and continue to see growth across all channels. And Q1 was no different.”

Lululemon now expects net income to be in the range of $1.75 billion to $1.77 billion for the current quarter, representing a three-year compound annual growth rate of about 26 percent. Adjusted diluted earnings per share are expected to be in the range of $1.82 to $1.87.

For the full fiscal year 2022, the company expects net revenues to be in the range of $7.6 billion to $7.7 billion, representing a compound annual growth rate of 24 to 25 percent over three years adjusted diluted earnings per share in the range of $9.35 to $9.50 each.

“Our teams continue to deliver strong financial performance while managing the ongoing impact of COVID-19, supply chain disruptions and inflationary pressures,” he said Meghan Frank, the retailer’s chief financial officer. “While we are not immune to these challenges, our omni-operating model, balanced growth strategy and unique approach to innovation are enabling the positive results we are reporting today and anticipating for the full year.”

McDonald, on the call, confirmed headwinds and the macro supply chain lockdown in China. Regarding the latter, the CEO said about a third of Lululemon’s 71 stores in China were closed in the first quarter and at least partially closed in the second quarter. Still, the region delivered double-digit sales growth in the most recent quarter.

“We continue to be excited about our business in China and view these headwinds as short-term,” McDonald said on the conference call.

Additional headwinds are macroeconomic issues in the supply chain and inflationary pressures, which have impacted commodities, labor costs and air freight prices. According to McDonald, some consumer price hikes will help offset the price hikes the company is facing.

“But I remain cautious about raising prices in this period of uncertainty,” he said.

In addition, inventories increased 74 percent to $1.3 billion in the first quarter, compared to $700 million at the end of the first quarter last year. Frank said on the conference call that the company “left earnings on the table” because it under-invented last year.

On Thursday’s conference call, Frank said the company currently feels well positioned in terms of inventory levels. “If anything, there are inventory pockets that we wish we had more of,” she said.

Zachary Warring, an equity analyst at CFRA Research, added that the increased inventories are not a problem.

“Unlike other clothing brands [Lululemon] is constantly growing into his inventory and had no trouble selling the inventory at full price,” he wrote. “[Lululemon] continues to run in dynamic times and we expect its margins to hold up better than its peers and more in line with luxury goods as inflation rises and consumer sentiment falls.”

His firm maintained a “buy” view on the company’s stock and reiterated a 12-year price target of $380.

Meanwhile, the CEO pointed to a number of tailwinds that have been positive for the company, such as: B. Consumers’ desire for more versatile clothing; healthy lifestyle trends and the brand’s range of technical clothing.

“I’m really proud of how the product has been received; Guest response to both core and new merchandise remains strong,” McDonald said, adding that touring and throw-back collections are coming in the current quarter.

“Our products are used throughout the home,” he said. “But our gear is designed for activity-based use. The outdoor sweat lifestyle. This is continuing as strongly now as it has during the pandemic. When you feel your best, you do your best.”

Lululemon tennis

Lululemon launched tennis apparel last quarter.
Courtesy photo

Last quarter Lululemon Extensions category include shoes, as well golf and tennis Dress. Lululemon is too the official outfitter by Team Canada (a role it will retain until 2028). Other product and category enhancements include Like new last year resale program, mushroom bag and the range of accessories from Mirror, such as dumbbells and ankle weights. (Lululemon Bought the home fitness system in June 2020 for $500 million.)

The retailer ended the quarter with 579 stores and $649 million in cash and cash equivalents. Lululemon shares, which closed 4.35 percent at $302.58, are down 4.65 percent year-on-year.

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