lululemon athletica (NASDAQ: LULU) reported another quarter of robust performance on the top and bottom line. The usual suspects -- men's sales, digital, and international growth -- were particularly impressive.
More importantly, Lululemon continues to see strong growth in its core business of North America, including core product styles, even as the brand is enjoying tremendous momentum internationally and starting to expand into new categories.
Here's what management had to say.
IMAGE SOURCE: GETTY IMAGES.
A strong core
Across the company, teams are executing at extremely high levels. In Q1, our total revenue grew by 20%, constant dollar comps increased 16% on top of a 19% increase last year, and earnings per share increased 35%.
-- CEO Calvin McDonald
Even with the 40% growth reported for the Asia-Pacific region last quarter, the company is still heavily dependent on growth in North America, which represented 89% of total revenue last year. But recent results indicate that there's still a fairly long runway of growth in Lululemon's home territory..
In the first quarter, North America revenue increased 18% year over year. McDonald said that "the momentum in this region remains strong," which suggests that there's no sign internally that this level of growth will slow down anytime soon.
Lululemon has a lot of opportunities to maintain sales momentum, such as expanding its assortment; launching new categories, such as skincare; and pushing ahead in digital and international expansion. That's why it was very encouraging to hear core product styles continue to drive strong performance in both women's and men's categories last quarter.
Balanced growth across men's and women's lines
Our guests responded well to both our men's and women's assortments. They engage with us across channels, as our store and digital businesses were both strong and our brand continues to resonate well in our core North American market, as well as in Europe and [Asia-Pacific].
Lululemon is still perceived as a women's brand, but men are gradually seeing what they've been missing. In the first quarter, comp sales growth in the men's category was 26%, and management believes the men's category will grow at 20% annually over the next five years, outpacing the low-double-digit growth expected in women's.
For the men's performance, management credited strength in both tops and bottoms, led by, once again, the ABC franchise and three core short styles: the Short, Pace Breaker, and Surge. The company also said customers were responding well to the new boxers, which is evidence of higher engagement with the brand among men.
The women's category saw comps increase by 19%, driven by sales of leggings and joggers. Lululemon has been known over the years for its premium stretchy yoga pants, so it was encouraging to see management credit joggers for driving results in women's. The strong performance with joggers reveals that the company's effort to branch out to other product styles is starting to expand wallet share with its customers -- something important for Lululemon to become a more formidable brand on a global stage.
Meeting high expectations
The results were enough to satisfy expectations, as the stock jumped about 5% the day after the earnings release, and that's with the stock already trading at a rich valuation.
Even though Lululemon didn't deliver the outperformance relative to expectations as it did last year, investors are optimistic about the company's ability to continue growing in its most saturated market while continuing to expand internationally. Plus, entries into new categories, such as skincare and a new loyalty program launching soon, should allow Lululemon to continue expanding its wallet share with customers and maintain strong growth on the top line.
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