Lululemon Athletica raised its sales and profit outlook for 2021 as first quarter results showed continued momentum in online sales, a strong resurgence in in-store traffic and the strength of its offerings for men and women.
“Our first quarter results reflect our strength in all growth engines, fueled by the continued expansion of our e-commerce business, our performance in all categories and geographies and a rebound in the number of customers shopping in our physical stores. CEO Calvin McDonald said on a conference call with analysts.
Net sales for the quarter ended May 2 jumped 88% to $ 1.2 billion. In constant dollars, sales increased 83%. The company had projected sales in the range of $ 1.1 billion to $ 1.13 billion. Wall Street’s consensus estimate was $ 1.13 billion.
Sales at corporate stores jumped 106 percent to $ 536.6 million. Direct-to-consumer (DTC) sales grew 55% to $ 545.1 million. DTC revenue represented 44.4% of total revenue, compared to 54.0% in the first quarter of 2020. Net revenue increased 82% in North America and 125% internationally.
On a two-year CAGR basis, revenue increased 25%, which is an acceleration from its three-year CAGR of 19% before the pandemic. Revenue increased overall, up 23% in North America and 41% in international markets, both on a two-year CAGR basis. McDonald said the growth “reinforces the fact that we remain early in our life cycle and have a unique business model that allows us to thrive in an ever-changing environment.”
Ecommerce compositions grew 50% on top of the 70% increase in the same quarter last year which had benefited from temporary store closures.
Adjusted earnings per share was $ 1.16 from 74 cents in 2019. Lululemon had forecast Adjusted EPS of between 86 and 90 cents.
“We have delivered to this high standard while strategically managing a number of ongoing macro-operational challenges, such as continued store closures, capacity constraints, supply chain challenges in ports and downsizing of air cargo capacity, ”said McDonald. “While challenges of all types will no doubt remain in the future, I have no doubts that we will continue to manage them effectively and achieve exceptional results. “
Growth of men exceeds that of women
Women’s earnings increased 23 percent while men’s increased 27 percent on a two-year CAGR basis. The ups and downs have seen their strength in women. Performance in the tops was driven by core styles and franchise extensions, such as the Align the tank.
The growth of men exceeded that of women over one year and over two years with a positive dynamic in its Moving assortment.
“In both women’s and men’s businesses, our sales success reflects our ability to constantly introduce new innovations to our customers as we expand the mainstream and newer categories and leverage our range of raw materials,” said McDonald. . “We are in the early days of our product journey with many opportunities to grow in our four key product areas of Yoga, running, training and movement.
Online, the healthy compositions came from a mix of new and existing customers and was aided by investments to improve its online experience. McDonald said, “We continue to improve product training, deliver better equipment solutions and tell stories in a more compelling way. “
Store productivity is restored
Store productivity improved to 88% of levels in 2019, exceeding management expectations and heading towards a goal of returning productivity levels to 2019 levels. Conversion has remained strong and continues to increase in double digits despite the upturn in traffic as capacity constraints are starting to lift in many markets.
McDonald said Lululemon remains “committed” to the stores and “is seeing more and more exciting real estate opportunities become available in key city areas around the world.” He attributed the store’s strong performance to the retailer’s salary protection initiative for staff implemented in 2020 which has helped stores reopen quickly to take advantage of the improvement in traffic he is seeing now. McDonald said, “It has helped us stick to our plans to relaunch our stores and re-engage our in-store-only customers. “
Mirror, the home fitness startup acquired in July 2020, remains on track to generate $ 250-275 million in revenue in 2021 and has been boosted by a strong Mother’s Day campaign. By mid-May, Mirror will be showcasing at nearly 90 Lululemon locations across the US and plans to reach 200 by the holiday sales season. McDonald said, “We now have dedicated Mirror Specialists among our educators in each of these stores, and the early sales results are encouraging. “
Internationally, McDonald’s said Lululemon had set “ambitious growth goals” after hiring a longtime Adidas executive last October. André Maestrini as executive vice president, international. He said, “From our new stores in China and continued growth in Asia-Pacific to our online performance in EMEA, the results continue to reinforce that we are at the start of the growth trajectory. And as I said before, I can see a time in the near future when our international business will grow in size to be equal to our North American business.
The improvement in profits was helped by an improvement in gross margins of 580 basis points to 57.1%. The gross margin increased by 320 basis points compared to 2019, thanks to the leverage of 220 basis points on the occupancy, depreciation and costs of the product team; an 80 basis point increase in product margin, with lower markdowns compared to 2019 and despite higher air freight expenses related to COVID-19.
Selling and administrative expenses represented 40.5% of sales, down from 46% in Q120 and 37.4% in Q119. The deleveraging from T119 is due to the inclusion of Mirror in results, coupled with higher depreciation due to accelerated investments to support its e-com business and operating channel costs related to COVID.
Adjusted operating income for the quarter was $ 202 million, or 16.4% of net sales, compared to 5.3% of net sales in the first quarter of 2020 and 16.5% % of net sales in the first quarter of 2019.
Inventories at the end of the quarter were up 17% to $ 732.9 million, from $ 625.8 million at the end of the first quarter of 2020. On a two-year CAGR basis, inventories were up 29 %.
Meghan Frank, Chief Financial Officer, said: “As we continue to see delays in receiving inventory due to issues at ports, our team is strategically using air cargo and we are comfortable with the level and timing. our inventory mix as we move into the second quarter. “
For the second quarter, net sales are expected to be between $ 1.3 billion and $ 1.33 billion. Diluted EPS is expected to be between $ 1.05 and $ 1.10 for the quarter and adjusted EPS between $ 1.10 and $ 1.15. In Q220, sales were $ 902.9 million, reported EPS was 66 cents, and adjusted EPS was 74 cents. In Q219, sales were $ 883.4 million and EPS was 96 cents.
For 2021, net sales are expected to be between $ 5.825 billion and $ 5.905 billion. Diluted EPS is expected to be between $ 6.52 and $ 6.65 and adjusted EPS between $ 6.73 and $ 6.86. Previously, forecasts predicted revenues of between $ 5.55 billion and $ 5.65 billion. Diluted EPS was expected in a range of $ 6.10 to $ 6.25 for the year and adjusted EPS was in a range of $ 6.30 to $ 6.45.
Photos courtesy of Lululemon