Lululemon Athletica Inc.’s growth streak continued in the third quarter, even though some are starting to wonder just how long the company’s dramatic expansion can last.
The athletic apparel brand posted third-quarter results after the market closed on Wednesday, improving on both top and bottom lines.
Revenues for the three-month period ended Nov. 3 were $916.1 million, up from $747.6 million a year earlier. That’s an increase of 23 percent. Profits also increased to $125.9 million from $94.4 million.
And traffic was up both in stores and online. Comparable store sales rose 10 percent during the quarter while sales in the direct-to-consumer business online were up 29 percent.
“We’re proud of the continued momentum in our business as we live into our vision to be an experiential brand,” said Calvin McDonald, Lululemon’s chief executive officer. “We are successfully executing on our Power of Three growth plan as we create authentic connections with new and existing guests around the world.”
McDonald added that store openings, including the company’s second experiential store, which opened in November in Minnesota’s Mall of America, have added to a halo effect that has consumers in a particular market shopping online after visiting a store. The retailer plans to open about 50 pop-up shops throughout the holidays and is expanding its retail footprint across Europe and Asia.
“Our guests engage with us in ways that build loyalty beyond a simple in-store transaction,” McDonald said on a conference call with analysts. “We’re offering them access to the Sweatlife.”
Still, shares of Lululemon, which closed up 1.5 percent to $233.19 a share, fell by more than 4 percent during after hours trading, representing investor fears that the company won’t be able to maintain its momentum. Lululemon’s fourth-quarter profit outlook, calling for earnings per share of $2.10 to $2.13, opened up some downside potential given that Wall Street has already looking for earnings of $2.13.
“The complexity of their growth going forward is going to be harder to come by over the next five years than the last five years in that category,” said John Morris, senior internet retail and brand apparel analyst at DA Davidson. His firm downgraded Lululemon to a rating of neutral.
Others worry over the pending departure of chief operating officer Stuart Haselden, who will be leaving the company in January to join luggage company Away as ceo.
Regardless, Lululemon has had an impressive year, with a stock that has grown more than 95 percent year-over-year. The retailer has also been identified as one of the early holiday winners during the Black Friday through Cyber Monday shopping period.
“With its strong, consistent traffic levels, Lulu is clearly leveraging its sweet spot between product innovation and customer engagement,” said Kate Fitzsimons, an analyst at RBC Capital Markets. “We observed ongoing strength in men’s, women’s bottoms and a steady flow of new product.”
Even Morris of DA Davidson, despite his reservations about growth, said Lululemon has “category-killer dominance.”
“We rarely see a company be able to turn it around just by advertising or marketing or what have you,” Morris said. “They have to have been investing in innovation and they have to have been investing in how to differentiate versus the competition. In apparel that can change, even from season to season. But Lulu’s really, really consistent with that.”
Other growth drivers for the quarter included men’s wear, outerwear and bras. Sales in the men’s business — which the company has previously said it plans to double in its five-year growth strategy — increased by 38 percent during the quarter, the largest category gain all year.
“Our men’s business continues to be very strong,” McDonald said. “We’re just getting started on our product assortments.”
Lululemon also participated in a number of collaborations last quarter, including a handbag collaboration with designer Katie Hillier and a high-fashion collection with London-based couture designer Roksanda Ilinčić. Other expansions include Mirror, the interactive home fitness system. In October, Lululemon took a minority stake in the company and plans to soon offer a new in-home Lululemon interactive meditation class by way of Mirror.
In regards to fears of a company slowdown, McDonald said, “We try to look at our outlook realistically.
“The majority of the quarter is still ahead,” he added. “We see a significant amount of opportunity.”