Lululemon stretches again in Q1 as sales rise 20%

Dive Brief:

Lululemon Athletica on Wednesday reported that first quarter net revenue rose 20% year over year to $782.3 million. E-commerce net revenue rose 33%, and was 26.8% of total net revenue, up from 24.3% in the year-ago period, according to a company press release.
Total comparable sales rose 14%, with store comps up 6%. The retailer opened 15 stores in the quarter and now runs 455.
Gross profit rose 22% year over year to $421.7 million, and gross margin was 53.9%, an 80-basis point expansion from last year's quarter. Operating income rose 23% to $128.8 million, and operating margin expanded 40 basis points year over year to 16.5%, the company said.

Dive Insight:

Lululemon is sweating at a time when many retailers have complained that chilly weather hurt their sales, but that's only a good thing.

The athletic wear and athleisure company continues to innovate fabrics and is expanding its men's assortments, online-only offers and loyalty pilot, CEO Calvin McDonald told analysts Wednesday, according to a transcript from The Motley Fool. The company arguably launched the athleisure movement years ago with well fitting performance fabrics in muted colors that have since become acceptable in many quarters for leisure and even office wear. Now it's purposely bringing its aesthetic to the office/travel/commute apparel category, according to Jane Hali & Associates.

"We believe the brand is a bright spot in the retail landscape. The [Lululemon] brand continues to evolve not only across their product, but also as a full lifestyle brand," they wrote in comments emailed to Retail Dive. "By doing so, consumers are better able to connect with the brand and become loyal consumers."

McDonald said that the company continues to test and scale a loyalty membership, bringing it in May to a third pilot city in Austin, Texas. Its buy online, pickup in store capability also expanded in the quarter, from 35 stores to 150, with 80% of orders ready for pickup within an hour. "We remain on track for a full rollout by the end of quarter three," he said, which positions the offer well for the holiday season.

But Instinet analysts led by Simeon A. Siegel noted some areas of concern, including somewhat ebbing comp and margin growth. The quarter's 16.5% EBIT margin, although "at obviously impressive levels," was the smallest year over year growth since the third quarter of 2017, "highlighting our concerns that EBIT margins are nearing their ceiling," they wrote in comments emailed to Retail Dive. They also warned that the higher costs of rising e-commerce "may be understated" and that "contrary to popular belief, we see DTC as mix-shift dilutive like the rest of retail," meaning that there's higher profit in every dollar of sales done in stores than online.