lululemon athletica (NASDAQ:LULU) could achieve $6 billion in sales in 2021, just two years after crossing the $4 billion mark in late 2019. That was the main takeaway from the apparel specialist’s recent earnings report that was packed with good news for investors.
In a conference call with Wall Street analysts earlier this month, CEO Calvin McDonald and his team broke down a few of those positive trends while discussing some headwinds, especially around costs and supply chain challenges.
Let’s look at a few highlights from the presentation.
Putting the growth in context
“When you look at our two-year [compound average growth rate], our performance truly stands out and shows the sustained momentum in the business,” McDonald said.
Lululemon’s 88% sales spike was partly a reflection of the fact that most of its store base was closed in the year-ago period due to COVID-19 traffic restrictions. But executives revealed a few encouraging metrics that were calculated on a two-year basis to eliminate the noise from that temporary slump.
Annual Q1 sales are up 25% on that basis, with menswear rising 27% and e-commerce jumping 61%. The chain’s international expansion is another proven growth point, with revenue up 41% since 2019. “Our results were driven by strength across channels, regions and product categories,” McDonald explained. Total revenue landed at $1.2 billion compared to management’s $1.1 billion forecast.
“We delivered at this high level while we also strategically managed a number of ongoing macro operating challenges,” McDonald commented.
Like peers including Nike (NYSE:NKE), Lululemon faced some profit headwinds in Q1, including limited access to shipping containers and rising costs around transportation, labor, and raw materials. The company had to pay up for air freight, for example, when it couldn’t count on traditional ocean freight to get inventory to stores in time.
Yet gross profit margin still jumped when compared to 2019, thanks mainly to the popularity of premium product releases in the athleisure niche. “Our sweet spot is creating versatile and stylish products,” McDonald said, “that include technical innovation, comfort, and flexibility.”
A brighter growth path
“We feel comfortable with the level and composition of our inventory as we move into Q2,” CFO Meghan Frank stated.
Investors can expect to see some volatile results over the next few months as the business continues to soak up higher costs and deal with consumer demand swings. Executives say they’re planning for several different operating scenarios, given the uncertainty around economic growth and COVID-19 containment in key markets like Europe.
Yet while profitability and two-year sales growth at stores is expected to be flat in Q2, Lululemon’s wider outlook is decidedly positive. Revenue will approach $6 billion this year, according to the updated forecast. That equates to about 22% growth on a two-year basis, which is faster than the chain’s expansion pace before the pandemic stuck. Executives also raised their outlook for new store launches and for gross profit margin. This earnings outperformance is mainly thanks to the accelerated shift toward digital sales, which are more profitable for Lululemon.
Shareholders should be thrilled with this news. And if you’re still deciding whether to buy the stock, that choice should be getting easier. Despite Lululemon’s stellar performance in the past year, shares are trailing the 40% boost in the wider market. That spells an attractive buying opportunity for patient investors looking for a high-performance growth stock.
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