Inside the Numbers
In Q1, Lululemon reported earnings per share of $1.16, topping expectations of $0.91 per share. In last year's Q1, earnings per share came in at $0.22 per share. Revenue also came in above expectations at $1.23 billion vs expectations of $1.13 billion. This is a remarkable increase of 88% as digital sales continued to grow, while in-store sales spiked significantly higher on the pent-up demand for people to visit retail locations.
Of course, 2020's Q1 featured many stores being closed which negatively impacted earnings. But if we compare this last quarter to 2019's Q1, there is still an impressive 57% growth in revenue. The company cited growth in its mens' brands as a source for growth.
Lululemon was clearly negatively impacted by store closures and decreased foot traffic, but some coronavirus trends offset this weakness. For one, demand for fitness gear remained quite strong especially as more people were exercising and spending time outdoors. While sales of formal clothing and shoes collapsed, athletic and comfort wear sharply increased.
Additionally like many retailers, Lululemon was able to accelerate the growth of its digital sales channel. Digital sales tend to be higher margins, increased amounts of customer retention, and higher average order sizes. Thus, its direct-to-consumer revenue climbed 55% to $545.1 million. Sales in North America were up 82% and international sales increased by 125%. Currently, international sales account for 14% of revenue but the company expects international sales to equal North American sales by 2025.
In Q2, Lululemon forecasts earnings per share between $1.10 and $1.15 on revenue of $1.3 billion to $1.33 billion. This was above consensus expectations of $1.01 per share in EPS and $1.2 billion in revenue. For the full year, the company hiked EPS estimates to $6.73 to $6.86 and revenue between $5.83 billion and $5.91 billion. This is an upgrade from its previous forecast of $5.6 billion in full-year revenue. Analysts were expecting $6.48 per share on sales of $5.68 billion.
Stock Price Outlook
Lululemon is a premium retailer with strong momentum. Its core business of selling fitness apparel to women remains strong, and it has multiple segments showing impressive growth such as Mirror, men's attire, online sales, and international sales.
Given that consumer spending remains strong and economic fundamentals point to a strong growth environment over the next 12 to 18 months, investors should remain constructive on the stock.