Lululemon Lab New York releases Reflective Splatter capsule

Lululemon Athletica Inc. saw sales and profits rise by double digits during 2016, exceeding the ath-leisure brand’s own expectations. A weak start to 2017 had investors fleeing however.

The company’s net revenue hit $2.3 billion last year, a 14 percent increase over the $2.1 billion in 2015. Income from operations rose by 14 percent to $421.2 million on comparable store sales grew by 6 percent.

Results for the fourth quarter were similarly positive, with net revenue growing by 12 percent to $789.9 million and comp-store sales also up by 6 percent. Income was up 18 percent to $196.6 million.

“Our performance reflects the strength of Lululemon and a unique position as a leading brand for an active mindful [consumer],” Lululemon chief executive officer Laurent Potdevin told Wall Street analysts during a call.

He added that 2016 was “milestone year” for the company that put it on a “solid foundation [for] future performance,” including new products and brand growth in North America and abroad.

Unlike a number of other retailers in the U.S., the company said its physical stores are “highly profitable” and Lululemon intends to open 28 additional locations in the coming months.

On the international front, Potdevin pointed to China as an area of growth for the brand, which opened three stores in the region last year that have already had a “strong performance.” Lululemon is also now selling on Alibaba’s Tmall, and is experiencing “tremendous growth” there as well.

“The magnitude of our opportunity in China is unparalleled, and the strong performance we’ve seen for store openings thus far gives us confidence in the market readiness as we accelerate our expansion,” Potdevin added.

As for 2017, Potdevin said the year has been off to a “slow start,” and Lululemon expects comp store sales to drop by the low-single digits for the first quarter and revenue to hit around $510 million, which is a slight increase over the $495.5 million in revenue from the first quarter last year.

This news, reported with the results after the stock market close, led to shares in the company dropping nearly 20 percent in early after-hours trading after rising 4.1 percent in the day session.

Expanding on issues so far this year, Lululemon chief financial officer Stuart Haselden said since the end of the fourth quarter, online sales have dipped and store traffic also “softened” in early February.

In order to keep momentum, Lululemon is set to inject its product offering with more color and make some changes to visual merchandising, and Haseldon said there have already been early positive results from the changes.

For the full year, the company expects revenue to be as high as $2.6 billion based on a total comp store sales increase somewhere in the low-single digits.

Potdevin also noted that the company is on track for its plan to hit $4 billion in revenue by 2020, and in line with that goal, Lululemon will be launching another global brand campaign, a new performance pant and new accessories beginning in mid-year.

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