Lululemon Sales Grow in Q2, but Profits Still Down
The yoga-centric brand will incur millions in costs related to store closures, but $4 billion in revenue by 2020 is still the larger plan.
Lululemon saw sales pick up in the second quarter, but profits are still lagging.
The athleticwear brand posted second-quarter net income of $48.7 million, a 10 percent decline from the same time last year, on net revenue of $581.1 million, a 13 percent increase. Comparable sales, including digital, increased 7 percent.
Diluted earnings per share came in at 36 cents, compared with 39 cents a year ago. But the company’s stock shot up in after-hours trading by 7.3 percent to $61.76 as earnings came in higher than expected.
Sales and profits were an improvement over the first quarter, which showed income down 21 percent and a 5 percent increase in revenue on comp sales declines of 1 percent.
Chief executive officer Laurent Potdevin said the boost in sales “reflects the growing consumer response” to the brand and that the increases still have Lululemon on its way to achieving its goal of $4 billion in revenue by 2020.
Potdevin added during a call with financial analysts that the brand is rapidly growing in popularity in Asia, where Lululemon saw year-over-year growth of 70 percent.
That growth is partially driven by Lululemon’s’ sales on Alibaba’s Tmall, which have increased 175 percent, and new stores in China and Japan. The company is set to open 12 more stores in Asia this year.
“International is a key growth driver for us and we see great opportunity as guests around the world seek to live more active lives,” Potdevin said.
The brand also saw 50 percent growth in Europe year-over-year and intends to open two stores there this year, including its first in Munich.
Lululemon took a hit during the quarter from the closure of nearly all of its Ivivva girl’s brand store locations, plans that were revealed earlier this year, to the tune of $5.4 million. The total cost of the restructuring, which will see the ivivva brand move primarily online, is expected to be as high as $60 million during the year and weigh on profits.
But the brand is moving ahead with growing its men’s line and Potdevin characterized the offering as Lululemon’s “best kept secret” with the potential to be a $1 billion-plus segment.
“We’re focused on guest acquisition and talking to men in unexpected ways through targeted experiences, community activation and stores,” Potdevin said. “We continue to deliver significant outperformance in the core category of men’s pants and shorts.”
During the third quarter, Lululemon will release its first men’s-only ad campaign.
The company is also working on the development of its web site and overall digital offering and said efforts have paid off with a 23 percent increase in digital traffic.
Chief financial officer Stuart Haselden noted that Lululemon is “still in the early innings of e-commerce business” but said there’s “outsized potential growth there.”
Taken together, Potdevin said Lululemon’s multiple areas of growth leave him with “full confidence that we can deliver on our 2020 vision as the leading global brand that defines the active lifestyle.”
Looking ahead, the company expects sales for the full year to increase, with comparable-store sales rising by the low-single digits on a constant dollar basis. Revenue is projected to come in between $2.5 billion and $2.6 billion leaving earnings of $2.04 to $2.11.