Lululemon Q3 Earnings: Revenues And Earnings Soar; Company Raises Guidance

Just when analysts across Wall Street decided "athleisure" is a thing of the past, Lululemon Athletica ( LULU ) turns around and shows them just how prevalent the trend still is. Despite slowing growth in the apparel industry, the company managed to post strong earnings this quarter, surpassing all expectations. Furthermore, the active wear giant has gone ahead and raised guidance for the second time this year. The company has also initiated a $100 million share buyback plan which with the earnings surprise sent the stock price soaring by 15% the folloeing day. Additionally, management has reiterated that Lululemon is on track to achieve its five year goal, as stated in 2015, of doubling its revenues (to over $4 billion) and more than doubling its profits by 2020.

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Athleisure is not Dead yet

The Activewear or the 'Athleisure' trend has become so popular, it has carved out a niche for itself in the clothing industry. It has been the lone star in a waning apparel industry, with an estimated market size of $44 billion in the US alone , according to research firm NPD Group. While the apparel sales, as a whole, increased 2% year over year in 2015, the rise in activewear sales was a whopping 16%. If this category is excluded, the total clothing sales would have declined 2%, NPD stated. Morgan Stanley has predicted growth to $83 billion by 2020, stealing the market share from non-athletic apparel. The graph below charts the rise of the trend globally, with sales climbing from $197 billion in 2007 to over $350 billion by 2020 .

Global Activewear Sales

This relaxed standard of clothing has especially been driven by the millennials, the largest demographic in the U.S. comprising 28% of the population. Their increased health consciousness, and a cultural shift in the workplace, has made it more acceptable to wear sneakers and tube-pants to the office. Lululemon has had a big hand in the success of athleisure as a clothing option. With targeted advertising and unique campaigns, the company has managed to change the way we think about clothing. Furthermore, Lululemon has helped popularize yoga in North America, making it a cool thing to do, publicizing it with events such as the Yoga Day.

Key Strategies for the Future:

As mentioned previously, Lululemon is on track to cross the $4 billion mark in revenues by 2020. The company has stated five key areas of focus to help achieve this goal:

  • Product innovation: Defining and redefining the fabric used in its products is essential to keep up with competition. Lululemon has been at the forefront of fabric innovation. With their latest sweat resistance technology and like-nothing pants, the company has completely beat out competition at the product level, providing great quality at reasonable prices. In this respect, the company has stated that it will be coming out with a "fantastic innovation" in the bra category in 2017. Further, it recently opened its second lab concept store on Bond Street in New York.

  • International expansion: The company is also extremely eager to build its international presence going forward. In this respect, Lululemon is set to launch its first three stores in China. The opening of these stores is just a stepping stone in its broader plan. The company proposes to open an additional three to four stores in the coming quarters while expanding their online presence in the country. In Europe, the apparel giant is all set to launch its international flagship store on Regent Street in London. Apart from additional sales, this store will also be a great way to advertise the brand further, given the street's global fame and traffic.

  • Maximizing its potential in North America: In the recent past, Lululemon has tried very hard to expand its store base in North America. So far the strategy has proved to work. Not only does this mean additional sales, but it also enables greater growth in the brand's image and targeted marketing. The expanded co-located stores are particularly doing very well. The approximately 5,000 square foot location has allowed the company to showcase a broader assortment of men's lines. Going forward, the company plans to increase its presence in North America further as it prepares a plan to combat local competition efficiently.

  • Building a digital ecosystem: The company's focus has been to bring to life its design vision, pulling through a combination of engaging storytelling, personalization and assortment, while making the commerce experience scalable, easy and frictionless. In today's day and age, it is essential for the company to have a digital footprint that gives the consumer easy access to what the company is and what it has to offer. Lululemon is concentrating on making the online experience as engaging and seamless as possible.

Given the points stated above, it seems as though Lululemon has positioned itself well for future advancement in a market that has immense potential for growth. Further, we can expect Lululemon to end the year with a bang on the back of a successful holiday season.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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