It was never a question of whether lululemon athletica (NASDAQ:LULU) would report a first-quarter sales rebound this past week. The apparel chain was going up against a year-ago period that included some of the most intense lockdown weeks of the pandemic. A year later, its rebound was sure to be strong.
But Lululemon recently announced some head-turning metrics, including an over 100% increase in store-based revenue. Its digital sales channel kicked in even more gains to put the company on pace for an even brighter 2021 than executives had predicted just a few months ago.
Sales are booming
Lululemon logged a 106% increase in sales at its stores, which is understandable given that a large number of its locations were either closed or operating at dramatically reduced capacity in early 2020. Yet that rebound came even as the digital sales channel continued to surge, with sales jumping 55%. Lululemon logged more business from its e-commerce segment than from its brick-and-mortar stores, in fact, which helped push overall revenue higher by 88%. Investors had been looking for a much more modest 70% hike.
Executives eliminated some of the noise from the pandemic by releasing two-year growth figures. Lululemon's sales are up 57% compared to this time two years ago, equating to a 25% compound annual expansion rate. "Our strong performance across categories, channels and geographies," CEO Calvin McDonald said in a press release, "demonstrates the momentum and strength of lululemon as we shift into the new normal."
Gross profit more than doubled to $700 million as the company largely avoided the type of supply chain challenges that had tripped up Nike in early 2021. Margins are rising thanks to the combination of surging sales and a demand tilt toward premium athleisure products.
The profitability story isn't as positive as the demand rebound, though. Operating margin is roughly flat over the last two years as gains in gross profit have been offset by extra spending in areas like e-commerce fulfillment, shipping, and labor.
Still, investors have to be happy to see adjusted earnings jump to $1.16 per share in Q1 compared to $0.23 a year ago. "The strength of our financial position," CFO Meghan Frank said, "allows us to continue to delivery against our ... growth strategies while we leverage both near-term and long-term opportunities."
That near term is getting brighter. Lululemon now sees sales landing at between $5.8 billion and $5.9 billion in 2021. Three months ago, executives had been targeting $5.6 billion of sales. The apparel giant has several major growth levers it can pull in the next few years, too, including its international expansion and a push into new demographics like menswear. Executives are excited about the opportunity around seasonal pop-up stores and an accelerating pace of new product release.
These attractive trends all suggest Lululemon might just be getting started on its growth path as of early 2021. The chain can now reasonably target $6 billion of annual sales just two years after crossing the $4 billion mark in 2019.