lululemon Gains Momentum Across the Enterprise

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lululemon Gains Momentum Across the Enterprise

By Jamie Grill-Goodman - 06/14/2019

Q1 2019 Results

  • Direct to consumer net revenue increased 35% 
  • Traffic drove comps both in-store and online with increases of 8% and 41%
  • E-commerce revenues in China increased over 100%  

Athleisure retailer lululemon has seen its e-commerce business double over the last two years and to keep its momentum going strong it’s gearing up to expand its new loyalty program and buy-online-pickup-in-store capabilities, launch a new retail experience, and more.  

The retailer also continues executing its Power of Three five-year vision, while its first-quarter 2019 profits and sales topped analysts' expectations and sent shares up 3% on release of the news.

"lululemon continues to see strong momentum across the entire business,” commented CEO Calvin McDonald.

The yoga-wear retailer posted a 35% increase in digital in the quarter on top of a 60% increase last year. The growth represents a more than doubling of the e-commerce business over the last two years. E-commerce reached nearly 27% of total revenue for the quarter.

In China, the retailer is investing in digital capabilities with the relaunch of its .cn site in the first quarter to complement its presence on Tmall and WeChat. To this end, Lululemon saw China e-commerce revenues increase over 100% in Q1.

Q1 2019 Revenue and Sales Results

  • Revenue in North America grew 18% as the momentum in this region remained strong
  • Net revenue was $782.3 million, an increase of 20% compared to the first quarter of fiscal 2018
  • Total comparable sales increased 14%
  • Comparable store sales increased 8%
  • Gross profit was $421.7 million, an increase of 22% compared to the first quarter of fiscal 2018

“These results also include the great success of our super Brand Day Event with Tmall in April,” noted McDonald. “As part of this event, we invited 400 guests to join us at the Intercontinental Shanghai Wonderland for sweat sessions, meditation classes and also a function show. The event garnered significant attention from the media and on social channels. And it was a great way for us to connect with both new and existing guests.”

On the brick and mortar side, the China team delivered nearly 70% market growth and entered three new cities with strong store openings in Chongqing, Xi'an and Xiamen, and plans to open 10 to 15 stores in China this year.

In the U.S., lululemon will open it “first truly experiential store” in Lincoln Park in Chicago, IL, in July.

“This 20,000 square foot store captures who we are as a brand as it will embody the Sweatlife through multiple studios, a meditation space, a healthy juice and food offering and areas for community gatherings,” said McDonald.

BOPIS Rollout

To intertwine its digital success with its stores, lululemon expanded its buy-online- pickup-in-store (BOPIS) capability from 35 stores to 115 in Q1 with 80% of the orders ready for guest pickup in one hour. The retailer is on track for a full BOPIS rollout by the end of Q3 and plans to market the service aggressively in the fourth quarter.

“As we roll out to more stores we're able to position it differently within the website experience and the checkout making it a lot more known and really start to market it,” said McDonald. “So early indication is encouraging. We think it's a necessity and leveraging our omni-strategy which is one of our pillars of growth.”

“I'm encouraged by it,” he continued, “and I think it would be a wonderful way to continue to drive our traffic into the store, drive that incremental pickup and contribute to the top-line.”

In addition, lululemon also significantly improved its mobile point-of-sale capabilities in the recent quarter so associates can complete purchases from anywhere in the store.

Loyalty Expansion Plans

Last year, Lululemon began testing a new loyalty program in Edmonton, Canada. In May, the retailer expanded to its third pilot city in Austin, TX, after rolling it out in Denver, CO.

“We are very encouraged by the results in each city and our tests have brought new learnings and innovations as we look to scale the program,” noted McDonald.

Q1 Investment

Capital expenditures were approximately $68 million for Q1 2019 compared to approximately $34 million in the first quarter 2018. The increase relates primarily to store capital for new locations, relocations and renovations and IT and supply chain investment. 

Cap Ex is expected to be approximately $265 million to $275 million for the fiscal year 2019. This increase reflects a ramp up of the store renovation and relocation program, new store openings, technology investments and other corporate infrastructure projects. 

The loyalty program, a first for the athletic apparel retailer, charges members $128 a year for a choice of pants or a pair of shorts, monthly curated sweat classes, attendance at curated events, and free expedited shipping on e-commerce orders.

“We're now testing in Edmonton, Denver and Austin, and in each market we tweak the programs slightly from the product that we make available to the guests, to the price point that we make available to the guests…we raise the price point in our later tests to see how the guest would respond,” McDonald said. “We are playing with the events which are the primary benefit from joining in to the membership. And in each market, the results have been well above our expectations.”

He noted the retailer would expand into more markets in 2020 and is excited about the potential of the loyalty membership to drive new customer acquisition, which is what lululemon is seeing with the program.