lululemon

Lululemon Athletica is charting a new course

As retailers around the nation set furloughs amid the prolonged store closures that were initiated last month to prevent the spread of the coronavirus, the Vancouver, British Columbia-based company said it will continue to pay employees until June 1 — even if its stores remain closed.  

“At Lululemon, our people are our top priority,” Lululemon chief executive officer Calvin McDonald said in a statement. “These decisions enable us to support our teams and immediate business priorities, while balancing what is required to plan for the recovery and growth to follow. We’re making the right commitments now as we navigate what’s ahead for the future.”

McDonald added that for the next three months, salaries of Lululemon’s senior leadership team will be reduced by 20 percent and the board of directors will forgo their cash retainer. The funds will go toward the newly established “We Stand Together Fund” to help company employees “facing COVID-19 related hardships.”

The company also made the decision to discontinue its share repurchase program for the time being. 

Lululemon was just one of many retailers to temporarily close up shop in North America and Europe last month to contain the ongoing coronavirus pandemic. At the time, the company said it would reopen stores on March 27, later extending the date until April 5. 

As of Thursday, Lululemon stores in North America, Europe, Malaysia, Australia and New Zealand, along with a distribution center in Washington State, are closed. 

“Until it is safe to reopen, Lululemon stores will remain closed,” McDonald said in a tweet the same day. 

Just how long stores and other public venues will remain closed is unknown. But in the U.S., President Trump said social distancing measures, which includes temporarily closing retail shops, restaurants and museums, among other social gathering spots, will remain in place until at least April 30.

The athletic apparel company might be one of the strongest retailers to weather the pandemic, with its substantial cash flow — more than $1 billion in cash on the balance sheet and no long-term debt — and its loyal fanbase. In the most recent quarter, Lululemon improved on both top and bottom lines, with top-line revenues surpassing more than $1 billion in a single quarter.

But its losses in China — where the company temporarily closed all 38 of its stores in February because of the coronavirus outbreak in the region — paint a picture of what’s to come as the retailer prolongs store closures in other parts of the world. 

McDonald told analysts on Lululemon’s most recent conference call that China’s in-stores sales noticeably dropped during the quarter. Some of the sales were made up online and through mobile apps (Lululemon gained thousands of followers on WeChat during the Chinese stores closures, for example), but only a small percentage. 

As of mid-March, all but one of Lululemon’s stores in Greater China have reopened. 

“We are not yet back to pre-closing volumes [in China], but the business is getting stronger week by week,” McDonald said on the conference call.  

As for the North American and European businesses, McDonald said he’s seeing a similar trend.  

“Since closing [in North America and Europe], our digital business has picked up, but it’s obviously not recovering all the volume loss from our store networks being closed,” McDonald said. “We have seen our store — or our online business — accelerate in terms of growth. But obviously, it cannot pick up the entire demand.” 

Lululemon has more than 430 stores spread out across North America, Europe, Malaysia, Australia and New Zealand.

To curb losses, the company said it was reducing nonessential operating expenses, including slowing the pace of new hires, reallocating marketing spend, decreasing employee travel and working to defer new store openings and store remodels. 

Lululemon also has a $400 million revolving credit facility, which will mature in three years. The facility also has the option to extend by $200 million.