Is Lululemon inflation proof?
Lululemon raised its outlook for the year after reporting second-quarter results that came in well above expectations, with same-store sales racing ahead 23 percent. The stellar performance came despite concerns over promotions across the apparel space and a slowdown in the athleisure category.
On an analyst call, CEO Calvin McDonald noted that traffic was up over 30 percent at stores and over 40 percent online. “Importantly, we are not creating this traffic through markdowns or price promotions,” he said. “Lululemon remains predominantly a full-price business, and we have not changed our promotional cadence or markdown strategy and we have no plans to do so.”
He cited a litany of reasons for Lululemon’s continued strength, including: product innovation that is resonating with existing customers and reaching new ones; successful category expansion into golf, tennis and hike as well as footwear; community activations; and its DTC (direct-to-consumer) model.
“Our own channels, both brick-and-mortar and digital, allow us to connect directly with our guests, foster deeper relationships and engage with them in many ways beyond just a purchase transaction,” Mr. McDonald said.
Competitor Athleta, owned by Gap, experienced an eight percent decline in comps in the second quarter. On Gap’s recent analyst call, Katrina O’Connell, EVP and CFO, said Athleta had been impacted by a “modest slowdown” in women’s athleisure, citing NPD data, as demand has “shifted from athleisure toward work and occasion in the short term.”
Jefferies’ Randal Konik last week downgraded Lululemon to “sell” on increasing doubts the chain will be able to reach five-year goals, set in April 2022, to double sales by 2026, driven by doubling men’s and digital sales and quadrupling international revenues.
In a note, the analyst wrote that recent downtrends in China may hinder international growth, that the men’s push faces challenges due to the brand’s strong association with yoga and women, and that entry into new categories, including footwear, may lead to reduced management focus on leggings and other core offerings. Her also cited the increasingly-pressured apparel category.
Mr. Konik wrote: “Inventories are bloated across retail (LULU included), promos are rising industry-wide, FX is not helping, and inflation isn’t going away.”
- lululemon athletica inc. Announces Second Quarter Fiscal 2022 Results – Lululemon
- lululemon Announces Five-Year Growth Plan to Double Revenue by 2026 to $12.5 Billion – Lululemon
- Lululemon Athletica (LULU) Q2 2022 Earnings Call Transcript – The Motley Fool
- It’s not just inflation. People aren’t visiting clothing stores like they used to because they’re sick of loungewear. – MarketWatch
- Gap (GPS) Q2 2022 Earnings Call Transcript – The Motley Fool
- Jefferies Downgrades Lululemon (LULU) Stock to ‘Sell’ – InvestorPlace
DISCUSSION QUESTIONS: What’s driving the recent outperformance by Lululemon? Is it sustainable amid the broader inflationary pressures and increasingly promotional apparel space?