Although the pandemic took its toll on most major retailers, Lululemon’s (NASDAQ:LULU) enduring popularity means that the company will be able to weather the novel coronavirus storm and emerge unscathed. LULU stock put up solid first-quarter numbers that were aided by the company’s its successful e-commerce business.
While this figure was below analyst expectations, with a 17% decline in revenue, the company was still able to bag a net income of $29 million. Given its history of high returns, prior to the pandemic, Lululemon stock is well worth the investment.
E-commerce Sales Are a Boon for LULU Stock
Lululemon’s reigning success is largely due to its strong direct-to-consumer business. As retail stores shuttered across the country, the company’s digital platform served as a lifeboat in its hour of need.
With the outbreak of the pandemic and the subsequent store closures, web sales have become a key driver and for many companies. Retailers switched to an online business model and e-commerce giants like Amazon (NASDAQ:AMZN) and Target (NYSE:TGT) saw an unprecedented increase in sales.
E-commerce revenue in the U.S. increased by 125% just a month after closures and Lululemon’s large digital footprint allowed the company to benefit from this trend.
During the first quarter, Lululemon saw a dip in its overall revenue after several quarters of putting up double-digit growth rates. Revenue was $652 million, which was lower than the estimated $688 million.
However, the company also saw its digital sales increase by 68%. A number that is attributable to the surge in demand for athleisure wear as people remained confined to their homes.
According to a report by CNBC, an executive at the company stated that Lululemon earned a massive gain in market share through sales of women’s bottoms, which quickly became one of its bestselling products.
As stores begin to reopen, Lululemon is likely to see an increase in revenue as in-store sales pick up. The retailer is estimating a high single-digit growth in Q4. The company also plans to keep the momentum of its online sales going through investments in its digital platform.
Investing in the Future
Although digital sales were not enough to offset the losses from store closures, Lululemon still plans to double down on its digital platform investment. The long-term prospects of this move will result in a greater payoff as e-commerce sales can yield a better margin than brick and mortar.
In an attempt to streamline digital operations, Lululemon will use its physical stores as a ship from locations. While this can’t replace in-store sales, it can certainly increase the speed of the shipping process. This will set the company up for greater success in the upcoming quarter and complement its offline sales.
Lululemon maintains a good relationship with its customers through a vertically integrated supply chain. This is aided by the company’s investment in artificial intelligence that keeps the supply chain infrastructure secure. Through minimal disruptions to its delivery service and efficient distribution chains, LULU was able to effectively capitalize on online sales.
The company will bring its digital efforts to the masses through the “Community Carries On” program, a virtual hub for customers. The initiative includes a digital educator service where customers can engage with the brand and discover new products. Lululemon plans to leverage this program as consumers’ buying habits shift in a post-Covid world.
Open for Business
The underlying reason for Lululemon’s poor numbers this past quarter was the closure of physical stores. Although digital initiatives helped soften the blow, it wasn’t enough. The company is hoping for a major comeback by the fourth quarter, a goal that is wholly dependent on the resurgence of offline sales.
Since the pandemic, Lululemon re-opened 300 stores globally, 190 of which are in North America. The move put the company on its path to recovery as it saw a 20% increase in comp sales. According to CFO Meghan Frank, the reopening of stores has exceeded expectations and the company is gearing to put up strong numbers in the fourth quarter.
Since the lockdown, there has been a surge in demand for athleisure wear. This is also owed to the increasing need for comfort over style which plays into Lululemon’s core product. Nearly 40% of the company’s product line is non-seasonal adding to the evergreen quality of its offering.
The global athleisure market is estimated to have a valuation of $257.1 billion by 2026. As Lululemon continues to increase sales through a combination of new styles and e-commerce investments, it stands to gain a lion’s share of the market.
The Bottom Line on LULU Stock
Although Lululemon stock did see a dip this past month, it continues to remain a strong performer in the apparel industry. In an effort to diversify its portfolio, the company announced its first-ever acquisition of Mirror, the interactive technology platform, for $500 million. Lululemon hopes that the acquisition will “mirror” the company’s fitness apparel success in the tech space.
Lululemon’s strong digital platform will also be a bright spot in its swift recovery and being cash-rich is an added advantage. The company boasts a strong liquidity position with a cash reserve of $1.2 billion and no long-term debts.
Moreover, the fitness giant can continue to command full prices as most of its inventory is non-seasonal. The future prospects for increased growth and its investments in digital operations make LULU stock a worthy investment for the long haul.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.
