Dive Brief:
- Lululemon finished off a strong year with 30% Q4 revenue growth and a 27% increase in comp sales, according to a company press release. For the year as a whole, revenue surged 30%, reaching $8.1 billion, while comps were up 25%.
- While overall sales were strong, Lululemon’s Mirror home workout business was not: Hardware sales disappointed and the retailer is transitioning its strategy to focus more on app-based content, CEO Calvin McDonald said on a call with analysts. The retailer took $443 million of impairment charges related to Mirror in the fourth quarter.
- Both net and operating income fell meaningfully in the fourth quarter: operating income was down 47% and net income fell 72%. Those metrics were also down slightly for the year.
Dive Insight:
Lululemon surpassed its own expectations for 2022, exceeding the $8 billion mark for the first time on its path to $12.5 billion in revenue by 2026. Next year, the retailer is planning to reach up to $9.4 billion in revenue, which would represent 16% growth.
The retailer is growing spend with its loyal customer base through its new membership program. The two-tier program, which includes a free “Essential” tier and a paid Lululemon Studio tier, launched in September. The free level has already reached 9 million members, McDonald said, and the company is hoping to get more of these members into its paid content service by rolling out a lower-priced workout subscription.
The cheaper offering will allow users to access the same content as its Lululemon Studio program, but without having to own the Mirror device. McDonald said the rationale for the switch was to draw in a broader audience after Lululemon Studio was not meeting its expectations.
“The Mirror proposition – which was once meant to be at the heart of the company’s push into content and community building – has failed to resonate with the mass of consumers,” GlobalData Managing Director Neil Saunders said in emailed comments. “In our view this is because it is an expensive and relatively complex solution that too few are willing to invest in.”
On the other hand, Lululemon is doubling down on its footwear offering, with a new Blissfeel Trail running shoe set to launch this spring and an updated version of its Chargefeel set for release as well. A men’s footwear line will launch in 2024.
The one dark spot is inventory, which grew by 50% year over year. But, Saunders notes, most of the glut is in staple products, which will make it easier to clear. McDonald also indicated that the company doesn’t plan on heavily discounting to get itself out of that hole.
“We do not drive our top-line growth through discounts or promotions and we have no intentions to do so,” McDonald said. “We run a full-price business with markdowns strategically used to clear seasonal and other select products, and this will remain our approach in the future.”
