Lululemon shares jump with sales, earnings

Sales and earnings soared in the first quarter at Lululemon Athletica Inc., the retailer seeming to bear no scars from the hasty exit of former CEO Laurent Potdevin in February.

“The last three quarters have been a stepped-up performance when it comes to market share gains,” said executive chairman Glenn Murphy, who has been overseeing the management team since Potdevin resigned after four years.

The Vancouver retailer, which has 411 stores in North America, Europe, Australia and Asia, saw its shares hit a record high in after-hours New York trading, jumping 6 per cent to US$111.51.

At the start of the quarter, the company announced Potdevin’s departure and confirmed that the CEO had breached the retailer’s code of conduct. Reports later said that he had engaged in a relationship with a former employee.

Regardless, improved sales and traffic in North America and robust growth in Asia helped push a 25 per cent boost in Lululemon’s revenue in the period ended April 29, to US$649.7 million. Earnings were $US75 million, or US55 cents per share, compared with US$31 million (US23 cents) in the same period of 2017. Analysts were expecting average earnings per share of US46 cents.

Same-store sales, a critical industry bellwether that tallies volume at stores open for more than a year, rose 6 per cent on a constant dollar basis as customer traffic increased, while online revenue soared 60 per cent.

“The athletic sector continues to benefit from really strong macro-trends,” Murphy told analysts on a conference call Thursday. While the more casual “athleisure” apparel trend is a contributing factor in the sector, the broader thrust in athletic apparel and accessories comes through its ties to the growing health and wellness trend, he said.

As mass market brands moved into the niche of yoga leggings, Lululemon has diversified its assortment over the years and now carries a wide assortment of sport-specific technical apparel, a growing men’s’ business and casualwear. The company expects its menswear line will account for 25 per cent of its business by the time it hits an estimated US$4 billion in sales by 2020.

The quarterly results are particularly impressive, said Neil Saunders, managing director of GlobalData Retail, “against a more competitive backdrop with specialist players like Gap’s Athleta and sports players like Adidas all crowding into the yoga and mindful clothing market.”

Lululemon will open 15 to 20 stores in this year in Asia, where comparable sales surged 50 per cent and growth was particularly strong in China. The company noted its third and fourth stores opened in Korea in the quarter, and new stores opened Germany and the UK. Same-store sales in Europe rose in the double digits, the retailer said, exceeding internal targets.