Lululemon on Thursday reported that second quarter net revenue rose 25% (24% in constant dollars) to $723.5 million, as total comparable sales — which includes both stores and direct to consumer sales — rose 20% (19% in constant dollars), according to a company press release.
Comparable sales in stores increased 10% (in constant dollars as well), and direct-to-consumer net revenue rose 48% (47% in constant currency). Excluding the impact of the company's online warehouse sale, direct-to-consumer net revenue rose 66%, (65% in constant currency).
Gross profit in the quarter rose to $396.2 million, an increase of 33% compared to the second quarter of fiscal 2017. Gross margin expanded 360 basis points to 54.8% year over year. Income from operations rose 95% to $134.2 million, the company also said.
Luluemon is doing well selling its patented-fabric activewear, but its broader achievement is in elevating the brand to a lifestyle proposition.
Chief Operating Officer and Chief Financial Officer Stuart Haselden told analysts on Thursday, according to a conference call transcript from Seeking Alpha, that the company's results were the result of ongoing structural investments that included opening more stores (particularly in North America), leveraging higher sales abroad, (especially in Asia), and improving its product assortment. Customer acquisition rose 30% in the quarter, which Haselden said fueled traffic increases in the high-single digits in stores and over 20% online.
While the brand's e-commerce is becoming an increasingly more important channel, stores remain key. In the quarter the company opened four net new stores and completed seven remodels, and expects to open about 40 new locations by the end of the year, according to Haselden. The company also opened 23 temporary stores, which the company calls "seasonal stores," at the end of the second quarter and plans to more than double that number into Q4, he said.
All those stores offer an elevated customer experience that the company is starting to carry through online. "In-store their experience is excellent and the company's online and mobile experience continues to improve," analysts at Jane Hali & Associates said in comments emailed to Retail Dive. "The merchandising is excellent and so is the content. The company highlights their wellness community, which gives consumers information regarding events. Consumers are also able to practice yoga with guided videos provided online and on the app."
The brand has a few times missed on quality and trends, but seems to have regained its footing. "We have noted positive changes in merchandising in-store and online. Product has also improved with a more fashion elevated assortment," Jane Hali analysts said. "We believe LULU is becoming more of a lifestyle brand globally."
That's something that rivals like Athleta, which in contrast seems to be playing things safer, can't boast, despite the Gap Inc.'s own success with its athleisure brand.
Indeed, the company appears to have weathered its time without a chief executive at the helm, after the abrupt departure of Laurent Potdevin early in the year. New CEO Calvin McDonald, who began at Lululemon last week from his position as president and CEO of Sephora's America division, made his first appearance on a call with analysts Thursday.