Lululemon Surges the Most in 10 Months After Online Sales Boom

(Bloomberg) -- Lululemon Athletica Inc.’s sales accelerated faster than expected last quarter, helped by booming e-commerce orders, sending the shares to a record high.

The yogawear maker posted comparable-sales growth of 11 percent when accounting for currency effects and direct-to-consumer channels. Quarterly revenue and profit beat estimates, easing concerns that a CEO shuffle will disrupt its performance.

Lululemon is pushing to create more innovative products, attract more male customers and expand internationally. But the February resignation of Laurent Potdevin, who the company said behaved unprofessionally, has threatened to distract from these efforts. With competition fiercer than ever -- Amazon.com Inc. and Nike Inc. are increasingly targeting Lululemon’s market niche -- maintaining focus will be a key challenge.

Against that backdrop, the latest numbers signal that the company’s plan is on track: The company sees its first-quarter sales hitting targets that are above analysts’ estimates.

“We are seeing strong momentum across our business as we now move into 2018, which is further positioning us to achieve our 2020 revenue goal of $4 billion,” Chief Operating Officer Stuart Haselden said in a statement.

The shares rose as much as 12 percent to $87.98 in New York on Wednesday, marking the biggest intraday rally in 10 months and the highest price since the company went public in 2007. Before the rally, the stock had been flat this year -- after rising 21 percent in 2017.

Direct-Sales Growth

Analysts had expected same-store sales to increase 8.6 percent when excluding currency effects, according to Consensus Metrix. The company also posted expansion of 42 percent on a constant-currency basis in direct-to-customer sales.

One sales driver in the quarter was Lululemon’s relaunched website, which improved shoppers’ experience and increased conversion. The retailer also opened pop-up stores in the quarter to capture holiday sales, and Lululemon said 40 percent of those shoppers were new to the brand. Lululemon also sped up product introductions to keep the assortment new and fresh.

“We are impressed with execution,” Pamela Quintiliano, an analyst at SunTrust Robinson Humphrey, said in a note to clients.

Lululemon is also increasing its capital spending by about 55 percent in 2018 to invest in stores, an international expansion and better analysis of data.

Excluding some items, profit was $1.33 a share last quarter, topping analysts’ average estimate of $1.27. Sales were $928.8 million in the quarter, which ended Jan. 28. That beat the estimate of $912.4 million.

Taking Their Time

Chairman Glenn Murphy, who was formerly CEO of Gap Inc., is temporarily leading the company in the wake of Potdevin’s departure -- an abrupt exit that was related to a relationship he had with an employee, people familiar with the matter said in February. The resignation wasn’t related to the company’s finances or operations.

Vancouver-based Lululemon has interviewed a number of candidates for the post, Murphy said on a call with analysts on Tuesday.

“We’re going to take our time,” he said. “We’re going to meet as many people as we can.”

To contact the reporter on this story: Lindsey Rupp in New York at lrupp2@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Lisa Wolfson

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