Lululemon’s upbeat outlook and earnings beat wasn’t enough to keep investors happy as shares fell after the retailer’s earnings call.
On Tuesday, Lululemon (NASDAQ: LULU) reported sales and profit that topped Wall Street’s earnings expectations for the fourth quarter. The key highlights of the report included the surge in demand for the athletic apparel maker’s e-commerce business, which resulted in double-digit sales growth for both its women’s and men’s clothing lines. Another positive from the earnings call was the company’s upbeat outlook for sales in the current quarter and for the full year.
Lululemon has high hopes that demand for its leggings and sports bras, which have gained a cult-like following, will continue this year. The brand’s increase in popularity really took off during the pandemic, when people were stuck at home and wanted sweat-wicking leisure gear to workout in every day.
CEO Calvin McDonald was confident on the call, stating:
“Our continued growth demonstrates the strength of Lululemon — before, during and as the pandemic subsides. We are still in the early innings of our growth, fueled by exciting innovations that create even more opportunity into the future.”
Overall, the Vancouver-based company had a strong quarter, reporting:
- Adjusted earnings per share of $2.58, versus $2.49 expected by analysts.
- Revenue of $1.73 billion, compared with $1.66 billion estimated by Wall Street, up 24% year-over-year.
- Net income of $329.8 million versus the $298 million reported a year earlier.
- Online sales growth of 92%, with women’s sales up 19% and men’s growing 17% in Q4.
- International revenue growth of 47% and 21% in North America.
Lululemon’s earnings forecast for 2021
The yoga clothing retailer expects revenue of up to $1.13 billion for the current quarter, beating analysts’ expectations of $999.5 million. For the full year, Lululemon is predicting revenue somewhere between $5.55 billion to $5.65 billion, compared with Wall Street’s estimates of $5.42 billion.
Lululemon more than doubled its e-commerce business during the COVID-19 emergency, but the company is still planning to pursue more physical stores. Lululemon wants to open between 40 and 50 new locations internationally in 2021, with 15 to 20 of those in mainland China. The Chinese market represents a major growth opportunity for Lululemon so the new physical stores will be vital to capture this new audience. McDonald also noted on the call that the company has many customers that only engage with the brand in physical stores, so the opening of new locations is very important for the company to be able to interact with them again.
Despite the confident outlook for 2021, Lululemon warned that a possible spike in COVID-19 cases could hurt its business. The company said a resurgence in the virus could dampen demand for clothing as gyms would stay closed, their physical stores would remain shut, and additional restrictions might also affect supply chains. This may have been the reason for the stock falling almost 2% in after-hours trading following the earnings report.
However, Lululemon is still optimistic that it is on target for reaching its 2023 goals of doubling its men’s and digital sales while quadrupling global sales. On the earnings call, the company also discussed its newly acquired at-home fitness equipment maker Mirror. Lululemon hopes the $500 million buy will give the retailer an additional revenue stream outside of clothing. Lululemon also said that it plans to pump cash into Mirror, which brought in $170 million in sales in 2020.
Overall, the retailer reported positive earnings while giving details of ambitious new plans to grow its business. If Lululemon opens up the new stores successfully and continues to smash earnings expectations, its stock price should mirror this positive trend too.
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