Yoga apparel has become quite popular in the athletic apparel industry in the recent times. Customers are becoming conscious of health and fitness and want activewear for their workouts. Thus, retailers who offer yoga apparel are benefiting from this trend.
Lululemon Athletica (LULU, Financial) is one such company. However, it has had to overcome a lot of problems to make its products resonate with customers, which we will come to later. Nonetheless, the company reported great second quarter results, which beat the Street’s expectations. This led to a 14% rise in its share price.
The recovery
Revenue stood at $390.7 million, 13.4% higher than last year’s quarter and much higher than the Street’s expectations. The results were driven by seven new stores opened during the quarter. However, sales at the existing stores declined 5%. Although the key metric looks worrisome, it is much better than the previous few quarters, where the company was witnessing even higher falls in sales.
Sales were falling from the last one year, mainly because the Luon yoga pants, launched in March last year, were transparent. This resulted in a lot of controversies, and the company had to make refunds to the customers. It involved a lot of costs to the retailer. Also, there were some fashion missteps since Lululemon did not change its products as per the changing trends. For instance, colored and printed pants were in vogue whereas the retailer provided the regular basic designs.
Nonetheless, it did manage to overcome these problems by undertaking quality control initiatives and bringing in new clothes which were according to the new fashion tastes. This resonated well with the customers, resulting in higher sales.
One of the best performing segments this time was the e-commerce segment, which registered a growth of 30%. The growing popularity of online sales and the company’s efforts into it led to this increase. Further, the bottom line stood at $0.33 per share, higher than the estimate of $0.29 per share.
Turnaround should payoff
The athletic apparel retailer’s efforts have been quite impressive, which helped in staging a comeback despite so much of the criticism. Its new products have significantly driven demand. It launched new products for men as well as for young girls. Its new introductions such as Studio Pants, Full-On Luxtreme and Lab Night Tights are almost sold out in the stores as well as on the website. In fact, customers were so attracted to its products that it had to bring in its fall products on its shelves in order to meet the demand.
Further, there is a shift of customers’ preference to more of activewear than jeans. This has resulted in even higher demand for such apparels. This should play a vital role in increasing the sales of such companies.
This is probably the reason why Lululemon increased its outlook for the year. It now expects revenue to be in the range of $1.78 billion to $1.80 billion from the previous range of $1.77 billion to $1.80 billion, for fiscal 2014. Also, the earnings estimate has been increased by a penny.
The bottom line
It is indeed commendable how Lululemon managed to win back customers’ confidence and generate sales for its products. It did plug all the loose ends and is now heading in a new direction. Its efforts to bring new products, expand its presence and the overall increase in popularity of athletic wear should lead to growth. Thus, this retailer looks good to go.
