Lululemon Sinks After Sales Lose Steam During Covid-19 Pandemic

(Bloomberg) -- Lululemon Athletica Inc. dropped after the company reported revenue that fell short of expectations, with a doubling of online e-commerce not enough to compensate for shuttered stores.

• The Vancouver-based retailer said online sales climbed 70% in the quarter that ended May 3 after excluding currency impacts. Including brick-and-mortar stores, revenue was $652 million, which was short of analysts’ estimate for the first time in almost four years.

Key Insights

• Like most retailers, Lululemon withdrew its outlook due to the impact of the Covid-19 pandemic. Company executives said on a call with analysts that improvement will be gradual, with revenue seen declining by high-single digits this quarter. Earnings per share, meanwhile, won’t grow until the fourth quarter.
• The results show Lululemon, a preeminent purveyor of yoga pants with a loyal following, hasn’t fully capitalized on the trend toward comfy clothes during the work-from-home era. Loungewear stands to benefit while formal wear falls out of favor, although apparel has broadly suffered as consumers shift toward staples like groceries.
• E-commerce, which was already underpinning growth before the pandemic, expanded rapidly. Lululemon is now offering “digital educators” who make recommendations to shoppers over video chat. Online sales were up 125% in April and the momentum has continued, Chief Executive Officer Calvin McDonald told analysts.
• Of Lululemon’s 489 total stores, 295 were open as of June 10, including all of its mainland China locations. It expects to be almost back to normal by the end of June.
• Inventories jumped 41% during the quarter, which McDonald attributed in part to resisting discounts. About 40% of its stock consists of core items that sell year-long and are in high demand, as opposed to seasonal merchandise, he said.

Market Reaction

• Shares fell as much as 8.4% in after-market trading. The stock, which has 23 buy recommendations from analysts, 12 holds and one sell, advanced 33% this year through Thursday’s close.

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