Investors have high expectations heading into lululemon athletica's (LULU 0.95%) upcoming earnings report. Its business had growing momentum even before the pandemic put an intense new consumer focus on athleisure apparel. Lululemon's mid-January sales update confirmed that sales trends stayed strong through the holiday shopping period in November and December.
But the chain's announcement this week will include more details on those growth rates, along with key financial metrics and an updated outlook for fiscal 2021. So, let's look at the key trends to watch in the report slated for March 30.
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Market share
Sales growth isn't expected to slow much from the market-trouncing rate shareholders have seen for most of fiscal 2020. Revenue expanded at a high-teens percentage rate, executives said in mid-January.
That's significantly better than the sharp slowdown CEO Calvin McDonald and his team forecast a month earlier. "We're pleased with our momentum over the holiday period," McDonald said in a more recent update.
Investors should get a valuable market-share update this week that will show continued gains in the booming athleisure niche. Lululemon gained ground last year thanks to a string of popular product releases and its high-performing online platform. Look for these assets to help the chain stand out again, even against successful peers like Nike this week.
Inventory levels
Lululemon entered the holiday period with more inventory than it usually would, and that's often a bad sign for the business given the competitive nature of that selling season. But executives in December described the increase as a temporary holdover from retailing pauses earlier in 2020. The inventory wasn't in danger of missing its seasonal sales window, they said.
As a result, investors are hoping to see no sign of declining profitability in this report. Gross profit margin rose by a full percentage point to 56% of sales last quarter and might continue edging higher through late 2020. Another boost this week would confirm that Lululemon is seeing no pressure to mark down its inventory as consumers snap up its workout gear. We'll also find out on Tuesday whether Lululemon was hit with some of the same shipping challenges that depressed Nike's December sales.
A new outlook
Lululemon hasn't issued a fiscal-year outlook since the start of the pandemic, but investors might see a new official forecast this week. The consumer discretionary company likely just ended the year with roughly 10% higher sales despite having closed its stores for several weeks in March and April. That success probably came paired with rising profitability, giving executives market-share momentum -- plus cash resources it can direct toward extending its lead in 2021 and beyond.
Weighing against those benefits is the fact that consumer demand will be especially hard to predict over the next few quarters as the pandemic winds down. But Lululemon has demonstrated an enduring connection with sports enthusiasts through every phase of the COVID-19 disruption.
That implies that, even if demand slows as compared to last year's spike, the chain should continue gaining share while becoming more profitable in 2021. That's a formula for continued positive returns for shareholders who simply hold on to this high-performing business.
