By Neil Saunders
This year, Lululemon turns 20, but as these results show, the business is not slowing with age. If anything, it is speeding up. This was a stellar quarter for Lulu, with growth surpassing even last quarter’s high benchmark. The numbers come off the back of fairly soft prior-year comparatives, but even when this is taken into account, Lululemon is still outperforming the market by a considerable degree.
Using its strong brand to drive growth in categories like outerwear and gifts, this mindful approach has allowed Lululemon to differentiate from rivals and persuade customers to pay full prices for products.
It is particularly impressive that the figures have been delivered against a more competitive backdrop, with specialist players like Gap’s Athleta and sports players like Adidas crowding into the yoga and mindful-clothing market. Smaller niche players also have been vying for growth. The 25% increase in sales supported by a 20% uplift in comparables shows that Lululemon can more than hold its own.
Online was the star of the comparables show, posting a phenomenal 62% increase. Much of this is due to the relaunched website, which is functionally better and far more engaging than the previous incarnation. Enhanced product images, more storytelling, and more content have helped create a stimulating experience. Our data show that website visits, dwell time, and conversion rates are all up.
The website could not post such good results unless the rest of the proposition was right. Lululemon’s product innovation is creating strong demand for garments that fit well, feel good, and have superior functionality. Lines like the Naked Sensation women’s pants, the Flow Y bra, and new footwear ranges have proved to be big hits. New spring color palettes and print designs have been well received and have stimulated purchases.
Outside of the core fitness ranges, Lululemon is using its strong brand to drive growth in categories like outerwear and gifts. The mindful approach, which is always concerned with how to combine great design with great function, has allowed Lululemon to differentiate from rivals and persuade its customers to pay full prices for its products. Lululemon’s price integrity is another reason for its outperformance. Promotional periods notwithstanding, products are not discounted, and customers know they must pay the full price if they want the product. Careful control of distribution, with items really only available via Lululemon’s site or stores, is fundamental to this success.
Despite these strong numbers, Lululemon still has a lot of potential to drive future results. These include international expansion and further penetration into menswear, where it has had much success but remains below-the-radar for many shoppers. It also has opportunities among younger consumers and, as the latest marketing has shown, it can capture the imagination and spend of this group with relative ease.
Good margins and strong sales have created success on the bottom line. Operating income rose by 130% while net income grew by 141%. These impressive results underscore how sound Lululemon’s operations are.
Looking ahead, growth rates may come down. Weaker uplifts in disposable income, which helped this quarter, as well as tougher prior-year comparatives, will slow the sales and profit acceleration. However, Lululemon’s advance will continue as the website, product innovation, and strong marketing ensure that the brand continues to grow market share.
Neil Saunders is managing director of research firm GlobalData Retail.