Lululemon flexes on plans for a 50% digital business

Dive Brief:

Lululemon on Wednesday announced that fourth quarter revenue rose 26% to $1.2 billion and comparable sales rose 17%. Next month, the retailer will host an analyst day in New York City, where executives on a conference call Wednesday said they would outline a five year plan.
For the fiscal year, net revenue rose 24% to $3.3 billion, with total comps up 18%. The company said it hit three 2020 financial targets in 2018: operating margin of 21.5%, gross margin of 55.2% and e-commerce penetration of 26%.
Looking ahead in the first quarter, the company expects revenue between $740 million and $750 million, based in part on the opening of 12 new stores before Q2. For the year, the company will open between 40 and 50 stores, with between 25 and 30 opening abroad. The company expects 2019 revenue between $3.7 billion and $3.74 billion based on total comp sales increases in the low-double digits.

Dive Insight:

As Lululemon executives reflected on the last year, they described it as an "inflection point in the business." That's meant investments in a new loyalty program, e-commerce, new and remodeled stores, and international expansion — which appear to be paying off.

On the e-commerce front, executives said they see potential for digital to represent 50% of the business in the years to come. E-commerce in China has been a big win, executives say; In the fourth quarter, e-commerce there grew 140%. New websites will debut soon in France, Germany, Korea and Japan, among other countries. International expansion will become a bigger focus this year, building off of moves made already, like the recent launch of its first Amsterdam store.

In an effort to stay competitive and sweeten the pot for loyal shoppers, at the end of last year Lululemon expanded its pilot loyalty program, and executives said it's exceeding expectations so far. The retailer is experimenting with the fee level by testing a different membership price in Denver, executives said on the conference call, and the intent is to select a few more markets to keep testing and roll out the program nationwide in "the coming quarters to year." This may be the kind of thing Lululemon needs to keep customers coming back as Nike stretches into its space with a new yoga line, even as many retailers are moving away from charging for loyalty.

Executives also touched on the growth of its men's business, which they said is growing faster than its women's business and has only reached 20% penetration. In particular, pants as a category have been a big driver of new customers, and outerwear is an area they hope to expand. "We believe Lululemon can be a dual gender brand and our men's can be as big as our women's [business]," Stuart Haselden, chief operating officer at Lululemon, said on the call.

There are three big reasons for Lululemon's success, according to Neil Saunders, managing director of GlobalData Retail: customer expansion, greater value in product extensions, and investments in stores and digital. "Ultimately, all of Lululemon's success and its future potential come down to a very clear brand vision which is flawlessly executed," Saunders said in emailed comments. "This stands in marked contrast to many other retail operators and it is the core reason for Lululemon's enduring popularity and continued growth."