Despite posting a mixed start to the year in Q1, Lululemon Athletica ( LULU ) decidedly turned things around in Q2. To put things into perspective, at the start of the year, the company's stock price fell by almost 25% on the back of disappointing store comps sales and slowing e-commerce momentum. However, the yoga pants manufacturer has worked hard over the last three months to make amends, and the market has rewarded them for their efforts. The company witnessed a near 8% jump in the stock price post the earnings call.
The company managed to beat earnings and revenues by a comfortable margin, surprising Wall Street and investors alike. Lululemon recorded sales of $581 million, representing an increase of about 13% year-over-year. Net income in the quarter came out to about $48.7 million, resulting in earnings of 36 cents per share. Additionally, the athleisure wear giant has raised its guidance for the year. For full-year 2017, the retailer is now forecasting $2.55 billion to $2.6 billion in revenue, with comparable store sales increasing in the low single digits. Excluding charges from the ivivva closings, Lululemon expects full-year earnings to fall somewhere between $2.35 and $2.45 per share. This is up from full-year earnings of $2.28 to $2.38 per share on revenue of $2.53 billion to $2.58 billion expected earlier.
Key Highlights :
- Earlier in the quarter, Lululemon's CEO, Laurent Potdevin, highlighted four "strategic pillars" that are expected to drive growth at the company over the next few years, ultimately surpassing the $4 billion mark in revenues by 2020. The company has worked hard to improve business over these four key areas that include digital, international, men's, and North American business. The turnaround in the company's results this quarter have been attributed to continued work in these four spaces.
- Through the quarter, Lululemon added improved credit photography and video that better highlighted product performance and functionality on the website. Additionally, the company continued to improve the range of products that are available online. In general, the company is working hard to improve the overall user experience, that is expected to convert a higher percentage of potential customers. The good news is that all these improvements are already showing results. In comparison to Q1, the sportswear manufacturer witnessed a 30% increase in site conversion in Q2. We can expect to see higher conversions going forward, as the company continues to work on its e-commerce capabilities.
- As previously discussed, international sales are expected to be a heavy growth driver in the coming years. In particular, the company has decided to target the Asian market most aggressively. Fueled by strong brand momentum, new store openings, and positive comps, both in-store and online, the company has recorded a mammoth 70% year-over-year growth across the Asian market, driven primarily by a 350% year-over-year growth in China. This exceptional growth is powerfully driven by the outperformance of new store productivity. The company plans to open at least 12 new stores in Asia over the second half of 2017, with approximately 6 of the stores being opened in China. With many more high potential markets to explore in the Asian region, we can expect Lululemon to benefit greatly from international expansion in the coming years.
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