lululemon athletica (LULU 3.87%) continues to prove its critics wrong -- myself included! Last week, I argued that the luxe athletic-apparel retailer would likely deliver underwhelming quarterly results and fail to regain investor confidence.
I couldn't have been more wrong. Not only did Lululemon deliver its 10th consecutive earnings beat, but the company also raised its guidance for the full year. Investors pushed the stock up more than 10% on Tuesday on the news.
Source: lululemon athletica.
Lululemon's revenue climbed 10% to $423.5 million in its fiscal 2015 first quarter, topping the average analyst estimate for net revenue of $418 million. Earnings per share of $0.34 were also better than expected. For those keeping score at home, that is more than double the prior year quarter's EPS.
These results are particularly impressive given that Lulu is in a transitional period as it expands into new product categories such as swimwear and pushes into international markets. Still, a significant spike in direct-to-consumer sales and strength in its menswear business were perhaps the most promising developments from the quarter.
Online sales surge
If you are an investor putting money into retail stocks today, they should be companies that are adept at selling through online and mobile platforms. Lululemon is proving that it has the chops to be a real competitor in this critical space. The high-end sports apparel brand now generates nearly 20% of its revenue from online sales. Direct-to-consumer sales increased 27% in the first quarter to $83.6 million.
This is a significant improvement from four years ago, when online sales accounted for just 7% of Lululemon's overall business. If Lulu can continue growing its direct-to-consumer business, it could be a game-changer for the stock. There are also operational benefits to having a robust e-commerce platform: Lululemon can move inventory faster as there are fewer steps in the supply chain when delivering products from the distribution centers directly to customers.
Additionally, Wall Street is increasingly looking for retail brands that understand how to drive traffic to their websites, thereby boosting comparable sales growth both in stores and online. Fortunately, investors can rest easy knowing Lulu is heavily investing in its e-commerce platform.
The retailer is strengthening its omnichannel offering, including a full global redesign of the Lululemon website. This will allow the company to broaden its online assortment of products while also deepening its product education capabilities, according to CEO Laurent Potdevin.
The redesign will also ensure that Lulu's website is available across a wide range of devices and smartphones, thus making it easier than ever for consumers to shop the site when and where they want. On the recent earnings call, Potdevin said the revamped website will be finished in time for the 2015 holiday shopping season.
Source: lululemon athletica.
From yoga brand to manly capable
Acceleration in the menswear business is another key growth component for Lululemon's stock going forward. It seems Lululemon's "anti-ball crushing" pants and similar products are a hit with hunks. In fact, during the first quarter, Lulu achieved 19% comparable sales growth in its men's category. On the earnings call, Potdevin said management is focused on increasing the in-store square footage at certain locations in order to add new menswear products. This comes as Lululemon is seeing a trend in which its female customers are shopping for the men in their lives.
The company also plans to build out stand-alone men's stores in certain markets and cities. Lululemon currently operates just one location in New York City that specifically caters to men. This means there is plenty of runway left to expand its fast-growing men's business. The menswear category is an $82 billion market in the U.S. today. Therefore, if Lulu can further increase its share of this market it could translate into double-digit earnings growth for many more quarters to come.
Ultimately, steadily rising online sales and growth in its menswear business should be major growth drivers for Lululemon going forward. On top of this, they offer investors reassurance that Lululemon's turnaround efforts are succeeding.
