How Did Lululemon Perform In Q1?

Lululemon Athletica (NASDAQ:LULU) pulled off an absolutely stellar quarter to begin 2018 with quite a bang. Revenues in the quarter soared, with sales improving by a whopping 25% year over year. Earnings jumped by a remarkable 31% compared to adjusted gross profit for the first quarter of fiscal 2017. Financials in the quarter were driven by continued implementation of its growth strategies, coupled with strong synergies due to the re-launch of its website. In general, the company benefited greatly on increased digital sales, which helped push sales at DTC up nearly 60% on a constant dollar basis.

Due to the exceptional performance, management has decided to raise its outlook for the full year. They now expect earnings per share to lie between $3.10-$3.18, up from $3-$3.08, while revenues come in at around $3.04 billion-$3.075 billion, up from $2.985 billion-$3.022 billion. Further, the company now expects comps to come in the high-single-digits.

While the Q1 earnings figures are definitely commendable, we must keep in mind that the quarter benefited greatly from easier year over year comparisons. That said, the subsequent quarters will be pitted against stronger financials, and consequently, tougher comparisons; meaning the company may not be able to deliver at the same rate as it has managed in Q1.

Key Highlights:

• While the athleisure trend continues to cool off, the larger apparel market is benefiting from a strong uptrend in the health and wellness sector, and an overall good global consumer economy. These developments have definitely helped improve the company’s financials over the past few quarters. This is evident in the market share gains in stores and in e-commerce, that the company has managed to achieve over the last three quarters in particular. We expect these trends to help the company expand the top line through the remainder of the year as well.
• In today’s day and age, it is essential for any company to have a digital footprint that gives the consumer easy access to what the company is and what it has to offer. In this respect, Lululemon has concentrated on making the online experience as engaging and seamless as possible in the recent past. With strong digital marketing campaigns and special promotions, the company has managed to record consistent gains from digital over the four quarters. We expect digital to grow multifold in the year, and for e-commerce to become a large revenue driver in the future.
• Asia continued to lead the way in terms of growth outside North America. The region recorded a near 50% jump in sales year over year, with China accounting for a large percentage of this growth. The company believes that current customer behavior is indicative that its e-commerce penetration in China could approach a significant 40% to 50% of its business in the region very soon.