Lululemon (LULU) Poised to Maintain Momentum

Lululemon Athletica Inc. (LULU), which reported its earnings last week for the third quarter, has navigated this year's retail headwinds and is poised for a strong 2021. International growth, expansion of its physical stores, digital acceleration, and strong e-commerce revenue as many embraced the work-from-home lifestyle and its more casual dress code have fueled the company's performance this year. Going forward, analysts expect the lifestyle company to continue to do well relative to increasing competition in a challenging retail environment.

Lululemon reported revenue of $1.12 billion, beating analyst expectations. The company's sales in the third quarter equated to a 22% increase from a year ago.

"As we look to next year, we see LULU benefiting from the reopening of its retail stores of which many were closed for effectively half of 2020 as well as from continued secular tailwinds both in category (athletic) and channel (digital), while prepping for category extensions (footwear coming in 2023) on which LULU is well positioned to optimize," said BTIG Research analyst Camilo Lyon.

Currently, Lululemon has 97% of its stores open globally, according to the CEO's estimates. And e-commerce contributed about $554 million, or 61% of total revenue, according to Meghan Frank, Lululemon's chief financial officer.

"Our product innovations, investments in the e-commerce business, and strategic acquisition of MIRROR position us well to serve our guests as their needs evolve across both physical and digital experiences," said CEO Calvin McDonald.

Originally known primarily for its yoga offerings, Lululemon has expanded in recent years to position itself into a broader "lifestyle inspired athletic apparel company" with a product line that includes "yoga, running, training, and most other sweaty pursuits." This year, the company has shown resilience and is still planning to open "30 to 35 net new stores while also accelerating our seasonal store strategy," according to the CEO.

Lululemon has also invested in digital acceleration. "We have enabled virtual waitlists, so guests no longer have to wait in line and instead can be notified via text when it is their turn to enter the store," McDonald said on the earnings call. "We continue to offer our digital educator and virtual concierge programs, and both initiatives continue to be well received by guests. This innovation demonstrates our consistent ability to be agile and anticipate the evolving needs of our guests."

Analysts were also excited about the MIRROR acquisition, which Lululemon bought for $500 million earlier this year. Lululemon's CEO described the acquisition as a "light integration," estimating that MIRROR will generate "in excess of $150 million in revenue for the full-year 2020," which is an increase from the earlier estimate of $100 million.

Lululemon will be rolling out MIRROR in only 10 to 15 stores this year and offering it on its website. "We made the strategic decision to increase marketing spend for MIRROR in the second half to take advantage of current trends toward spending from home and capitalize on the opportunity to drive business during the holiday season and into next year," said Frank.

An uncertain retail environment, consumer spending, and competition against companies like Peloton Interactive, Inc. (PTON) will continue to present risks for Lululemon through 2021. However, after navigating a challenging year through the pandemic, Lululemon appears hopeful about its long-term growth.

"We're definitely going to come out of the year ahead of where we thought we would be in the five-year plan on a dollar perspective, and we'll continue to invest in as we look forward to the '23 plan and then obviously, our planning beyond that, prioritizing the investments," McDonald said on the earnings call. "The center of our strategy is an omni ecosystem and approach and digital plays a big part of that. We're going to keep investing to ensure that we support the growth of the business and take a long-term view on it."






Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.