Please ensure Javascript is enabled for purposes of website accessibility

Lululemon Earnings: 3 Trends to Watch

By Demitri Kalogeropoulos - Jun 1, 2021 at 9:22AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Sales should jump by nearly 70% compared to pandemic lows a year ago.

Investors have some big questions heading into lululemon athletica's (LULU -3.28%) earnings report in just a few days. The retailer overcame temporary store closures to log solid growth through fiscal 2020. Shoppers enthusiastically turned to its e-commerce platform in the pandemic's early days and kept spending as the athleisure industry boomed late last year.

Lululemon's stock price hasn't moved higher after its blowout fiscal fourth-quarter report, which means investors might see a volatile trading week ahead if the chain outperforms expectations again. With that big picture in mind, let's look at some trends to follow in Lululemon's report on Thursday, June 3.

A young woman holding a yoga pose.

Image source: Getty Images.

Stretching for the target

CEO Calvin McDonald and his team issued a bullish outlook for the quarter in late March, saying that revenue should jump to $1.1 billion compared to $652 million a year earlier. Yes, that 69% spike would be driven mostly by pandemic-related weakness in early 2020. But hitting that figure would still mark impressive growth over the $782 million first-quarter result the company achieved two years ago.

The broader story is about market share growth in a booming industry niche. Lululemon has credited valuable competitive assets like its e-commerce platform, popular brand, and steady pipeline of apparel releases for helping it outpace rivals like Nike through the past year. We'll find out on Thursday if the yoga apparel specialist was able to extend its market share momentum into early 2021.

New niches

Lululemon came into the pandemic crisis with an unusually prominent digital sales channel, and that lead allowed it to cash in on shopper behavior changes. E-commerce landed at 52% of total sales last quarter compared to 33% a year earlier.

That success combined with a string of popular product launches to drive adjusted operating margin up to 27% of sales in late 2020. Lululemon is looking to get back to annual growth on this metric, which had been expanding for several consecutive years before 2020. A weaker margin, on the other hand, might imply bloated inventory or stumbles in the chain's competitive push into new demographics like menswear.

Aiming for $6 billion

A lot has changed since executives issued their first 2021 outlook, and so investors might see an update to that forecast on Thursday. Heading into the report, Lululemon is targeting $5.6 billion of sales this year to mark a 25% increase from 2020. Sales grew 10% last year, for context, and expanded by 22% in the year before, which wasn't affected by the pandemic.

The stock's weak performance in 2021 suggests that Wall Street pros don't think Lululemon can boost sales at such a strong clip while expanding profitability in a competitive industry. But I wouldn't bet against the retailer on this score. Instead, a few factors, like international sales, its seasonal store strategy, or hit new product introductions, might allow Lululemon to beat that aggressive growth outlook.

Sure, the chain would be hurt by an industry slowdown if consumers decide to refocus spending in areas like travel and dining as the U.S. reopens. Yet that's no reason to avoid owning this attractive business today.

Demitri Kalogeropoulos owns shares of Nike. The Motley Fool owns shares of and recommends Lululemon Athletica and Nike. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Lululemon Athletica Inc. Stock Quote
Lululemon Athletica Inc.
LULU
$322.47 (-3.28%) $-10.95
NIKE, Inc. Stock Quote
NIKE, Inc.
NKE
$113.16 (-2.46%) $-2.85

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.