Lululemon keeps chugging, posts first annual profit in the EMEA

Lululemon Athletica, continuing to deal with supply chain and Covid headwinds in 2021, delivered 47 percent topline growth in 2021 to almost $6.26 billion as it initiated strategies to broaden its reach with current, new, and international customers. The annual operating profit rose by 63 percent to $1.33 billion last year as the net profit came in 66 percent higher year-over-year at $975.3 million. Gross margin improved to 57.7 percent from 56.0 percent despite higher air freight expenses. Company costs to move products to distribution centers rose 16.5 percent to $270.8 million and were up nearly 154 percent from the 2019 level.

In a year where its business outside North America grew 50 percent and its EMEA region business turned an unspecified profit for the first time, Lululemon says it remains on track to quadruple its international business by the end of 2022. Last year, revenues outside North America rose 50 percent, with each region posting double-digit sales growth on a two-year CAGR. After a store optimization/remodel program was initiated, sales in China were up 60 percent, and Australia posted key improvements after a store optimization/remodel program was initiated. Still, company sales outside North America only represented about 15 percent of the topline, or an implied $938.5 million. Last year, Lululemon spent $812.6 million buying back 2.2 million shares of its common stock, and last week, its board approved a new stock repurchase program for up to $1.0 billion worth of shares.

Net income rose 32 percent to $434.5 million in the fourth quarter ended Jan. 30. Operating income was 29 percent higher year-on-year to $590.6 million, but gross margin slid to 58.1 percent from 58.6 percent on higher air freight costs. Revenues were 23 percent higher at more than $2.13 billion as e-commerce comps increased by 16 percent for a two-year CAGR improvement of 50 percent. DTC sales rose 17 percent to account for 49 percent of the topline. Store channel revenue rose 47 percent on 50 percent traffic improvement from a period-end door count of 574 locations. Lululemon generated double-digit sales gains on a two-year CAGR basis for women’s (+20 percent), men’s (+28 percent) and accessories (+33 percent) segments during the holiday period, with outerwear, second layers, and technical shorts paving category sales. Mirror results were described as performing within the company’s revised expectations from December 2021, when it forecast annual revenues for the brand to come in at $125-130 million, down from $170 million in 2020.

The current 2022 outlook, likely to be detailed further during a scheduled analyst day in April, calls for total revenues of $7.49 billion to $7.615 billion with year-on-year e-commerce growth in the mid-teens. Lululemon will open 70 net new company-owned stores, including 40 in markets outside North America, for overall square footage growth in the low 20 percent range. Meanwhile, in the first quarter, revenues are forecast to increase by 24-26 percent year-on-year to a range of $1.525 billion to $1.55 billion. But gross margins will take a hit on higher air freight costs related to port congestion and capacity constraints. Inventory dollars are forecast to rise more than 49 percent until the end of 2022, when the growth rate should begin to moderate.

Lululemon is entering new categories in 2022, including footwear, tennis, golf and hiking through new product innovations in each, but maintains that “core seasonless” products that carry minimal markdown risk will continue to make up about 45 percent of its overall merchandise assortment. The brand’s “On the Move” collection, for example, will be expanded throughout the year with more tops and bottoms as more consumers return to their offices and routines before the pandemic’s onset.

In development for four years, three women’s running shoe styles and a performance slide led by the Blissful debuted on March 22 in the U.S. and China. The collection is slated to launch in the U.K. shortly. Tennis products will be unveiled this week, followed by golf during the first week of April. “There are a lot of golfers out there in our ABC pants and shorts…,” said CEO Calvin McDonald. “We see a select opportunity to bring some distinct performance to these categories. It will lift both the category and our credibility.”

Another area in which Lululemon is aiming to establish a foothold is re-commerce. An initial program is up and running at 80 participating stores in California and Texas. Gift cards are issued to those bringing in gently used items that are sent out to a third party for washing and posting for sale. McDonald sees the effort as helping the company acquire new customers and get existing ones to spend more with the brand.