Lululemon on Dec.10 reported $1.1 billion in sales in its third quarter, which ended Nov.1. With sales up 22% from the same period the year before, the company again beat analysts’ estimates — no surprise, given soaring demand for comfortable clothes and the huge growth of digital sales during the pandemic.
The premium sportswear company reported a 94% growth in direct-to-consumer revenue, representing 42.8% of total revenue, compared to 27% in the third quarter of 2019, and from sales that the company makes straight to its consumers through its retail stores and website. Total sales increased by 19% in North America and 45% worldwide over a year. Revenue from women’s wear grew 22% year over year, while men’s was up 14%.
At the company’s third-quarter earnings conference call, CEO Calvin McDonald brought up the surge in digital sales as a main reason for the sales spikes. After Covid-19 spread around the world in early 2020, Lululemon’s sales declined in physical stores not only in North America but also in Europe and Asia. McDonald said the company had responded to the skyrocketing demand for online shopping during the pandemic.
“We have been investing in our digital capabilities and enhancing the experience of our e-commerce sites for several years, which enabled us to quickly respond to the accelerated shift to Omni this year,” said McDonald, referring to the omnichannel marketing strategy through which sellers and customers communicate.
Analysts agreed that the company’s online sales offset its brick-and-mortar losses under the Covid-19 restrictions.
“As coronavirus continues to keep shoppers at home, demand for work-from-home and exercise-from-home trends are only strengthening Lululemon,” Gene Gallagher, an equities research associate at Wedbush Securities, wrote in his note.
Because of the uncertainty in the pandemic, Lululemon did not offer a full outlook for 2021, but CFO Meghan Frank said that the company was well-positioned for the holiday season.
Gallagher also wrote that the gift-giving season would be profitable for Lululemon.
The company’s stock price dropped slightly a day after its strong third-quarter earnings report, but in the next week, it went up 12% for the week, closing Thursday at $386.07 — 67.6% over a year ago.
David Swartz, an equity analyst at the investment research firm Morningstar Research Services LLC, said that Lululemon’s stock was too overvalued.
“Lululemon is a strong company, but investors’ expectations of Lululemon are now extremely high,” said Swartz. When the expectations are too high, he said, even small negative signs — for example, if a company cannot beat the analysts’ estimates — could make the stock price fall.
The pandemic has boosted the athleisure market, but sales momentum may not last beyond it. After the virus fades out, the pandemic boost for the demand for sportswear and loungewear may cool down, and competition in the industry may intensify.
“Lululemon is a strong company,” Swartz said. “But there are tons of competitors.”