When lululemon athletica (LULU 3.02%) announced fiscal fourth-quarter 2019 results on Wednesday after the market closed, investors couldn't have been more pleased.
The yoga apparel specialist's revenue had climbed 26% to $1.17 billion, including a stellar 16% increase in total comparable-store sales. And net income soared an even better 82% to $218.5 million, or $1.85 per share. Both figures easily crushed Wall Street's expectations for earnings of $1.74 per share on more modest 20% revenue growth.
Perhaps unsurprisingly, Lululemon stock popped 14% on Thursday in response.
Still, I think it's an invaluable exercise for shareholders to dig deeper in an effort to understand what's driving Lululemon's business. Lucky for you, the company provided plenty of insight to that end during its subsequent quarterly conference call with analysts. Here are five things from this quarter's call that Lululemon management wants investors to know.
Check out the latest earnings call transcript for lululemon athletica.
IMAGE SOURCE: LULULEMON ATHLETICA.
On reaching financial goals far ahead of schedule
The trends we've seen all year in traffic, guest engagement, and product margin continued and contributed to our nearly 40% increase in adjusted EPS in the quarter. I'm also proud to report that we achieved three of our 2020 financial targets in 2018, two years ahead of schedule. We reported an operating margin of 21.5%, a gross margin of just over 55%, and our e-commerce penetration reached 26%. These levels are all at or above the targets we set for 2020 and were made possible by our investments over the last three years in supply chain, technology, and innovation.
-- Lululemon Chief Operating Officer Stuart Haselden
To be clear, Lululemon shares had already climbed almost 90% in the year leading up to this report, helped by the fact it had easily exceeded management's expectations for each of the past three quarters. But it certainly helps that the company was able to meet the above goals -- namely improved operating and gross margins and strong e-commerce penetration -- so far ahead of its original plan.
What's more, Lululemon is quickly closing the gap on reaching arguably its most ambitious goal of $4 billion in sales by 2020 -- which would represent 21.6% growth from $3.3 billion in its just-completed fiscal 2018 -- an aggressive target that previously left many industry watchers wondering whether Lululemon had set its bar too high.
On ramping personalization initiatives
We've just begun speaking to our guest in a more personalized way, but we are ready to accelerate our capabilities in this area in the coming quarters. We also have additional opportunities to improve the experience our guests have by continuing to enhance our search, navigation, and checkout functionality. And we can also improve the way we use our sites for our brand storytelling to drive guest engagement. Internationally, we are particularly excited to be able to expand our digital reach this year as we launch local market sites in Japan, France, and Germany.
-- CEO Calvin McDonald
Given its roots in yoga apparel and its zeal for educating its community with in-store fitness classes, Lululemon is already an inherently personal business. And the company's enviable 16% total comparable sales growth -- comprised of a 6% increase in comparable-store sales and 37% growth in direct-to-consumer net revenue -- is evidence its efforts are succeeding. But Lululemon is astutely doubling down on personalization technology in an attempt to make its brand even stickier for its loyal customer base.
On growth from new and existing customers
Our guest engagement remained high as we continued to drive strong results in both new guest acquisition and our email list, with increases of nearly 30% and 70%, respectively. What's equally exciting are the increases we're also seeing from our existing guests. In Q4, we experienced a 40% increase in transactions by repeat guests.
-- Haselden
Perhaps partly thanks to the above personalization initiatives starting to yield fruit, Lululemon is not only doing well attracting new customers, but those customers are also returning on a more frequent basis. If the company can sustain these trends in the coming quarters, let it suffice to say it should bode well for its top- and bottom-line results.
On ramping international growth
We see significant potential for our brand outside of North America, and we will continue to build upon our recent momentum. China is an area of focus and significant opportunity for us. We are seeing strong success across this market and are pleased to see more and more people living the Sweatlife and engaging with our brand. We will accelerate the pace of new store openings and continue to connect with our guests through local community events and brand activations. We will also build upon the strength in our digital channel as we see a pathway for this segment to represent 50% of our business in the years to come. In Europe, we will leverage the city-by-city expansion strategy as we add new markets, such as opening our first store in Amsterdam two weeks ago.
-- McDonald
For perspective, of the $4 billion revenue goal for 2020, Lululemon only expects $1 billion to come from international store locations. It should be encouraging for current shareholders, then, to see the company accelerating its international expansion as a result of a strong reception to the brand in its most promising overseas markets. If Lululemon can indeed build its international segment to eventually represent half of total sales, we'll be talking about a significantly more valuable, diversified business down the road.
On that massive new share-repurchase plan
We ended the quarter with $881 million in cash and cash equivalents. ... We repurchased 1.5 million shares during the quarter at an average price of $121. This repurchase activity substantially completed our $600 million authorization put in place earlier in 2018. Coming into 2019, our board has authorized a new $500 million share repurchase plan. We believe that repurchasing our shares is an efficient and effective way to return excess cash to shareholders, and we'll continue to be opportunistic with our repurchase activity.
-- Lululemon CFO PJ Guido
Given the company's share-price appreciation and the conclusion of its previous $600 million repurchase authorization, it should be little surprise that Lululemon's board approved a slightly smaller buyback plan in its place. Still, with its store expansion plans and other strategic growth initiatives well funded, it's hard to fault the company for putting its enormous cash hoard to use by reducing the size of its float.
