Dive Brief:
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Despite impacts from the coronavirus outbreak "across our markets," Lululemon is sticking to its Power of Three growth plan after closing a $1.4 billion fourth quarter, CEO Calvin McDonald said on a conference call with analysts, according to a Seeking Alpha transcript.
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"We had fantastic momentum coming into the current situation," he said, "And there is nothing that I believe will fundamentally change our ability to regain that momentum." The growth plan includes doubling men's and digital revenues by 2023, as well as quadrupling international revenues.
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The athletics retailer has reopened all but one store in China, and is in a strong financial position to weather the impacts of the coronavirus outbreak elsewhere. "We ended the year with $1.1 billion in cash, no long-term debt and a $400 million untapped revolver," McDonald said.
Dive Insight:
In a global landscape that is being shaped daily by the coronavirus, the financial health of businesses is coming front and center. For two of the biggest players in the athletics space, Nike and Lululemon, it's revealing not only balance sheet strength, but also the power of brand communities.
Much like Nike detailed in its recent earnings report, Lululemon has been engaging with customers through free workouts, and gaining an even larger following as a result. McDonald noted that during the brand's first week of closures, nearly 170,000 people joined its live classes on Instagram.
In addition to an already strong digital channel — e-commerce accounted for 33% of total revenue in Q4 — the athletics retailer is banking on the non-seasonality of its merchandise to help it through the coronavirus outbreak without taking major hits to inventory.
Lululemon's Q4 performance
| Metric | Q4 | YoY |
|---|---|---|
| Revenues | $1.4 billion | +20% |
| Total comparable sales | 20% | - |
| Gross profit | $811 million | +21% |
| Gross margin | 58% | +70 BPS |
| Net income | $298 million | +36% |
Source: Lululemon press release
"There is a high percentage of business that is core which means we are able to hold and continue to sell for a much longer period of time," McDonald said. "We are less dependent on the need to flush out inventory."
Despite executives' strong outlook for the business, the retailer is not giving guidance at this time, and is taking measures to cut certain expenses, including travel and new hires. The retailer is also working with landlords to defer some of its planned store openings and remodels.
Comparable sales in the quarter increased 20%, according to a company press release, with 9% growth in stores and 41% in digital. Men's, another focus point of the retailer's growth plan, saw 39% comps growth in the quarter, while women's grew 12%.
