As athleisure and comfort remain the name of the game in a pandemic-driven world, Lululemon posted strong results Thursday, with revenue rising 22% to $1.1 billion (an increase of 19% in North America and 45% internationally), according to a company press release.
CEO Calvin McDonald on a conference call with analysts attributed the performance to six factors: loyal guests shopping the full assortment, a steady pipeline of new products, effective inventory management to support higher demand, pay protection for employees so reopenings and launches were smooth, investments in digital in years past that paid off and a brand that translates well across geographies.
The company also revealed it is planning an entrance into the footwear market in the back half of next year, with products beginning to sell in 2022.
Lululemon is having no problem maintaining its business during the pandemic — the retailer had its strongest quarterly market share gain in recent history (1.4 points year over year), is on track to open between 30 and 35 net new stores this year, and is already planning for more ways to integrate its recent Mirror acquisition, executives said.
The at-home fitness platform, which the retailer acquired over the summer, is expected to generate more than $150 million in revenue in 2020, and is becoming more ingrained in the Lululemon experience. In the quarter, the retailer launched a Mirror tab on Lululemon's website and began including the tech in its email marketing campaigns. The retailer also offered Mirror in 18 shop-in-shops and now plans to expand that to "several hundred stores" next year.
Sam Poser, an analyst with Susquehanna Financial Group, said in emailed comments that the firm expects Mirror's business to "more than double" in 2021.
"We remain confident MIRROR will be a material component of LULU's next phase of growth because it: 1) provides access and entry into the rapidly growing at-home fitness category; 2) expands LULU's omni-channel experience; and 3) provides the capability to create a first-class virtual shopping experience via augmented reality," Poser said.
The retailer is also planning more equipment innovation, including a 3D yoga mat.
E-commerce was a standout for the company, with a record-breaking online performance during Cyber Week, McDonald said on the call. That impacted comps: They were up 19% overall, mostly thanks to a 94% rise in digital comps, compared to a decline of 17% for stores.
Lululemon's Q3 performance
|Net income||$144 million||14%|
|Operating income||$205 million||17%|
|Gross profit||$627 million||24%|
|Gross margin||56.1%||100 basis points|
Source: Lululemon press release
Neil Saunders, managing director of GlobalData, called the results "stunning" and noted that the retailer was able to pick up new shoppers, particularly in womenswear, that are OK with the higher price points because they're no longer buying workwear or going out clothes.
"The question is, of course, how many of these consumers can Lululemon keep once the pandemic subsides," Saunders said in emailed comments. "Our view is that it will keep some and that will be enough to give the company a nice lift in the years ahead."
Stores may be the bigger issue for Lululemon, but they are likely to remain central to the retailer's success once consumers return, Saunders noted. Executives said on the call that it would continue to aggressively pursue its pop-up strategy, with 70 seasonal pop-ups open in the quarter and an increase to 100 planned for Q4 to help alleviate constraints at key stores.
While athletics retailers more generally have seen a boost during the pandemic, some might face difficult comparisons in 2021 thanks to the outsized performance. Lululemon, however, should not be a part of that list, according to CreditSuisse analyst Michael Binetti. Binetti noted that Lululemon has pulled forward investments this year, meaning more payoff in the future is likely.
"We don't think comparisons are as difficult as other similar stocks in 2021," Binetti said.