Dive Brief:
- After months of slowing growth, Lululemon in Q3 reported revenue increased 9%, to $2.4 billion, its highest revenue increase this year. Comps during the quarter were up 4%, according to a company press release.
- As Lululemon pursues a strategy to drive growth in North America, revenue in that region increased 2%, while comps decreased 2% in the quarter.
- Profits in the quarter were strong, with net income surging 41.5% and operating income growing more than 45% to more than $490 million.
Dive Insight:
CEO Calvin McDonald on Thursday sought to assure analysts that Lululemon is making progress on its North America turnaround, which includes plans for more newness in its product assortment and a restructuring of its product and marketing teams.
McDonald noted that customers continue to be engaged with the brand and are reacting well to the newness Lululemon has brought to its stores, while the product and marketing changes are creating more efficiencies throughout the business. Lululemon appears to have mostly corrected issues from the first half of the year, GlobalData Managing Director Neil Saunders said, when it missed opportunities due to a noncompelling assortment and not enough of the correct sizes.
“Across the third quarter the women’s range felt fresh and interesting and there was more than enough to grab the attention of shoppers,” Saunders said in emailed comments. “This both improved the conversion rate and helped with average basket sizes. In our view, Lululemon deserves praise for the quick course correction which underlines that it is a merchant-led organization.”
Needham analyst Tom Nikic said Lululemon’s sales performance “demonstrated a much-needed stabilization of top-line trends. All in all, the print made us incrementally more positive on the name, though we are still awaiting a return to positive comps domestically before getting more constructive.”
Importantly, the retailer appears to have had a strong start to the holiday season, with the most visits ever to its app and e-commerce site on Black Friday, according to McDonald.
Although there is a threat of tariffs on the horizon, CFO Meghan Frank said Lululemon has “very limited exposure” to China, with just 3% of its goods sourced from there, and about 0.5% of its goods sourced from Mexico. That insulates the brand from any significant financial impacts, but it will be a bigger problem for the company if tariffs are levied on imports from all countries to the U.S., according to Frank.
