More people are beginning to wear athletic clothes instead of other apparel for their daily life. People are wearing yoga pants on the sidewalk, to the grocery store and many other places where they previously hesitated to wear them. For this reason, the activewear market is booming rather than the general apparel market. Lululemon Athletica Inc. (LULU, Financial) is playing well in this activewear market.`
Founded in Vancouver, British Columbia in 1998, Lululemon is a designer and retailer of technical athletic apparel. The company offers a line of apparel and accessories for women, men and female youth. Lululemon leads through its design of innovative, functional athletic apparel. Its line of apparel and accessories includes fitness pants, shorts, tops and jackets designed for yoga, running, general fitness, and most other sweaty pursuits. It also provides dance apparel for female youth. By producing products that help keep people active and stress free, Lululemon believes that the world will be a better place. The company's yoga apparel is marketed under the Lululemon athletica and Ivivva athletica brand names. This athletic apparel giant’s branded apparels are sold through 354 stores that are located in the U.S., Canada, Australia and New Zealand.
The company recently reported third quarter results. Overall, Lululemon is a rock-solid company. Its vertically integrated business model (strong business model, omni channel guest centric approach, decentralized leadership) and other strengths such as its revenue growth, increase in net income and expanding profit margins, and solid financial position will attract more customers and investors. I think the company is a decent long-term investment.
Strong third quarter
Net revenue during the third quarter increased by 14% and was $479.7 million (which was $419.4 million in the prior year quarter).
Total comparable sales, which includes comparable store sales and direct to consumer, increased by 9% for the third quarter on a constant dollar basis.
Comparable store sales for the third quarter increased by 6% on a constant dollar basis, and direct to consumer revenue increased by 21% on a constant dollar basis.
Direct to consumer net revenue increased by 16% and was $89.3 million, or 18.6% of total company revenue, in the third quarter of fiscal 2015.
Gross profit for the quarter increased by 7% and was $224.8 million, and as a percentage of net revenue gross profit was 46.9% for the quarter.
Diluted EPS for the third quarter of fiscal 2015 was 38 cents, compared to 42 cents in the year-ago quarter.Ă‚
The company repurchased 1.6 million shares of the common stock at an average cost of $55.50 per share.
The company ended the third quarter of fiscal 2015 with $403.4 million in cash and cash equivalents (which was $633.6 million in the prior year quarter).
Updated outlook
For the fourth quarter, the company expects the following:
- Net revenue to be in the range of $670 million to $685 million.
- Diluted EPS expected to be in the range of 75 to 78 cents.
- Tax rate to be around 29.5%.
For the full fiscal 2015, the company expects the following:
- Net revenue to be in the range of $2.025 billion to $2.040 billion.
- Diluted EPS expected to be in the range of $1.81 to $1.84.
- Tax rate to be around 27.6% tax rate.
Positive attributes
- Positive trends in traffic.
- Continued acceleration of ecommerce business.
- Brand building.
- The company is intentionally striking a strategic balance between strong growth and investments within innovation and infrastructure.
Current focus
- Growing globally.
- Relentlessly innovate product lines.
- Continue to create transformational experiences for guests.
- International expansion.
- Successful brand-building events across the globe.
Why Lululemon?
As per The Wall Street Journal, by 2020 the U.S. athletic apparel market will increase by nearly 50% and the credit goes to Lululemon because of consumer affinity for its yoga pants. To improve the distribution of its products, the company has opened a new distribution center. Lululemon’s key success factors (brand and community, product, and guest experience) are fueled by innovation.
On a concluding note
Laurent Potdevin, lululemon's CEO, stated: "We had a solid quarter in line with our expectations underscored by the combination of our product, guest and community initiatives along with tremendous guest reception to major store openings around the world. I would like to personally thank all of our educators who create amazing experiences for our guests every day."
Potdevin continued: "We've implemented critical organizational changes this quarter and now have in place a complete, world-class management team that is aligned with our strategic global priorities focused on design and dedicated to creating long-term value."
The company is quite popular with women. The trend towards stylish and comfortable clothing, rise in disposable levels of income and a sudden increase in fitness-conscious people will boost the company’s growing popularity. The next few years may see the company shifting its focus towards other stylish accessories. Innovation has always played a key role in the company's success.
Disclosure: I do not hold any position in the company.
