Net income increased 31 percent to $189.99 million from $144.96 million for the period ended May 1, as total revenues rose 31.6 percent to $1,613.46 million from $1,226.47 million. Operating income increased 34 percent to $260.3 million, representing 16.1 percent of overall revenues versus $193.8 million or 15.8 percent of total revenues. Gross margin slipped 320 b.p. to 53.9 percent from 57.1 percent, impacted by a 0.37 percent drop in product margins and 0.34 percent year-over-year increase in freight costs. Supply chain issues are not improving, forcing the company to incur air freight costs where necessary to get key products to markets in a timely manner. Markdowns were said to be flat compared to the first quarter of 2021.
| Lululemon - Income | |||
|---|---|---|---|
| First quarter ($ thousand) | |||
| 2022 | 2021 | Change | |
| Net revenue | 1,613,463 | 1,226,465 | 31.6% |
| Cost of goods sold | 743,070 | 526,151 | 41.2% |
| Gross profit | 870,393 | 700,314 | 24.3% |
| Seeling, gen., admin. expenses | 607,851 | 496,634 | 22.4% |
| Acquisition-related expenses | – | 7,664 | – |
| Income from operations | 260,347 | 193,821 | 34.3% |
| Other income/expense | -22 | 227 | – |
| Pre-tax | 260,325 | 194,048 | 34.2% |
| Tax | 70,327 | 49,092 | 43.3% |
| Net | 189,998 | 144,956 | 31.1% |
| Diluted earnings per share | 1.48 | 1.11 | 33.3% |
| Source: Lululemon | |||
Comparable sales rose 29 percent in Q1, up 24 percent in stores and 33 percent in the digital segment. Store sales in the period increased 36 percent year-over-year, and 13 percent on a three-year CAGR as traffic increased 40 percent year-over-year. Digital sales were up 51 percent on a three-year CAGR to $721 million or 45 percent of all Q1 revenues, with e-commerce traffic increasing nearly 40 percent. North American sales were 26 percent higher on the three-year CAGR basis. Similarly, international revenues increased 37 percent. By segment on the three-CAGR basis, men’s sales were 30 percent higher; women’s were up 24 percent and accessories increased by 43 percent.
Lululemon, whose ambitious five-year growth plan detailed in late April aims for a doubling of revenues to $12.5 billion by 2026, is currently forecasting FY22 revenues of $7.61 to $7.71 billion, representing a three-year CAGR of 24 to 25 percent. E-commerce sales are predicted to increase in the high teens to low 20s year on year. The annual gross margin is expected to decline on additional investments in DTC, higher development costs for its Studio segment and higher air freight expense. The company is on target to open 70 new stores this year, 40 in markets outside the U.S., where year-on-year square footage will grow in the low 20 percent range. While one-third of Lululemon’s 71 mainland China stores were closed during the first quarter, 8 to 10 doors have recently reopened in Beijing, where Covid-19 restrictions are beginning to ease, the company said, adding that it remains excited about opportunities in the market despite current, short-term headwinds.
On a three-year CAGR basis, inventory was up 36 percent at the period end, with 5 percent of the total described as “in transit” products. The company will have its highest inventory growth rate in terms of dollars and units in Q2.
On the product front, Lululemon recently launched Senseknit, its newest fabric innovation that is said to deliver zones of support, breathability, and mobility into the fabric. Meanwhile, hike products are slated to debut in the coming weeks as the brand readies a “Throwbacks” collection by re-releasing new, limited runs of favorite styles from over the years. Expected to chase footwear inventory for the remainder of FY22, Lululemon recently followed up its inaugural March release of the Blissful with the Restful slide. On deck for later this year: the Chargefeel and Strongfeel footwear styles.
