The Canadian-based brand posted another stellar quarter, and its momentum still shows no signs of slowing. Net income for its first fiscal quarter ended Aug. 4 jumped by 30.6 percent to US$125.0 million, while revenues surged by 22 percent to $883.3 million. On a constant-dollar basis, sales were up by 23 percent.
Lululemon Athletica said it benefited from increased traffic in its stores, impressive growth in new markets – especially China – and strong gains on the digital front. The management confirmed its intention to keep investing in growth areas such as men's, international and digital.
The revenues were boosted by a 30 percent hike in online sales. On a comparable basis, sales increased by 15 percent in dollars and by 17 percent in local currencies, with comparable store sales rising in dollar terms by 10 percent and direct-to-consumer revenues over the internet soaring by 30 percent. On a currency-neutral basis, they were up by 11 percent and 31 percent, respectively.
Overall, the company's gross margin climbed by 0.9 percentage points to 55.0 percent – due to lower product costs, a better product mix and fewer markdowns. These factors were partly offset by higher supply chain costs and a negative currency effect of 0.2 percentage points. The operating margin inched up by 0.5 percentage points to 19.0 percent.
In Europe, where the company is on plan to become profitable, revenues grew by 35 percent. The management said it was pleased with the recent opening of its first mainline store in the St. Germain area of Paris, as well as the performance of its e-commerce sites in France and Germany, which both went live during the quarter. The company is on track to open five to 10 new stores this year across Europe.
In North America, the company's largest region, revenues grew by 21 percent. During the quarter, Lululemon opened its first experiential store in Chicago, using its new membership program featuring a workout space, locker rooms, a community space and a restaurant. It plans to test a high-volume mall version of it in the Mall of America, near Minneapolis, and it remains on track to open 15 to 20 units in the region this year.
The stand-out during the period was China, where the company recorded nearly 68 percent growth and opened two more stores. Lululemon is still committed to opening 15 stores this year in China, where it is already profitable. It also continues to invest in digital capabilities there with the relaunch of its website to complement its presence on Tmall and WeChat. The company expects that half of its sales in China will eventually be online. All of this contributed to a strong performance in the Asia-Pacific region overall, with revenues increasing by around 33 percent in the quarter.
All in all, Lululemon has opened 45 more stores globally since a year ago, adding a total of 17 percent more footage at the brick-and-mortar level, while continuing to develop e-commerce with more sophisticated solutions.
By categories, sales of women's products were up by 13 percent on a comparable basis. Comparable sales climbed by 27 percent for men's, representing almost 25 percent of the total turnover. The management pointed out that the athletic market is performing better than the overall apparel market, and that its products are less dependent on seasonal timing.
The management raised its guidance for the full year, expecting revenues in the range of $3.80 to $3.84 billion, with a comparable store sales increase in the low teens in constant currencies. This compares with an earlier forecast for revenues of between $3.73 to $3.77 billion, with low double-digit comparable store growth.
The forecast takes into account a minimal impact from the new U.S. import duties, as only 6 percent of its products sold in the U.S. come from China, but it does not take into account a potential for higher air freight costs incurred to overcome the congestion caused at U.S. ports by the accelerated orders placed by other companies. Lululemon has diversified its sourcing base considerably.
As previously reported, Lululemon unveiled a new five-year plan at its investor meeting in New York on April 24, which calls among other things for a fourfold increase in international revenues, the development of a footwear range and strong growth in the men's category, which could represent half of total sales in due course compared with 20 percent at present. Dubbed “The Power of Three,” it relies on three growth pillars consisting of product innovation, “omni-guest experiences” like Lululemon's loyalty program, and market expansion.
