Earnings push Lululemon shares to all-time high after hours

Company is on track to surpass its 2023 revenue target by end of 2021

Lululemon's Vancouver flagship store is at the corner of Robson and Burrard streets | Glen Korstrom

Vancouver-based athleisure powerhouse Lululemon Athletica Inc. (Nasdaq:LULU) impressed investors when it released its second-quarter earnings after the bell September 8.

The company's shares soared more than 13% after stock markets closed, to more than US$431 per share. The company's all-time high share price during regular trading is US$417.85.

Driving investor interest was the company's earnings report in which revenue and profit beat analyst expectations. 

Lululemon's net income for the quarter ended August 30 rose to US$208.1 million, or US$1.59 per share. That compares with $86.8 million, or US$0.66 per share, in the same quarter in 2020.

Excluding one-time expenses, the company earned US$1.65 per share – far above a Refinitiv poll of analysts, which pegged per-share earnings at $1.19.

Second-quarter revenue soared 61%, to US$1.45 billion, compared with US$902.9 million in the same period a year ago. 

North America was not only the company's largest source of revenue. It also was where the most growth came from. North American sales were up 63% year-over-year, compared with sales outside North America rising 49%.

"Consumers generally are being more casual in terms of what they're wearing, at least for now," retail analyst and Retail Insider Media owner Craig Patterson told BIV after Lululemon's earnings report. "Lululemon certainly addresses that trend from a fashion standpoint."

Patterson said one thing to be wary of when looking at the strong sales numbers is that many of the purchases could have been pulled forward from future quarters because so many people are working at home.

While Lululemon's clothes can be pricier than many fashion retailers offering casual wear, they enable customers to look "half-decent and presentable" in settings such as Zoom calls, he added.

Many workers are starting to return to work, but a significant number of others remain working from home, and many large global companies – Uber, Google, Amazon and Apple – have told staff that return dates to go back to the office will likely not be until 2022.

One thing in Lululemon's favour is what Patterson called its "cult following" of a customer base that has been willing to pay increasingly higher prices for clothes as inflation sets in and the company raises prices.

"When stores were closed, it was one of the few retailers that had fairly consistent lineups outside," he added.

Lululemon opened 11 new company-operated stores during the second quarter, ending with 534 stores.

"Our performance in Q2 was driven by a strong response to our product offering, improving productivity in our stores, and sustained strength in e-commerce," Lululemon CFO Meghan Frank said in a release.

"While we continue to navigate the COVID-19 environment, including supply chain headwinds, I'm excited with our momentum as we head into the second half of the year, and pleased to be able to increase our guidance."

Lululemon now foresees third-quarter revenue in the range of US$1.4 billion to US$1.43 billion, with adjusted earnings per share coming in at between US$1.33 and US$1.38. That is above analyst forecasts.

For the full 2021 fiscal year, Lululemon expects revenue to be in the range of US$6.19 billion to US$6.26 billion. 

BIV in June published its annual list of the largest public companies based in B.C., ranked by revenue, and Lululemon came fourth, with the equivalent of $5.905 billion Canadian dollars. 

Telus Corp. (TSX:T) came first, with $15.463 billion, followed by Teck Resources (TSX:TCK-B), with $8.948 billion, and Finning International Inc. (TSX:FTT) with $6.196 billion.

If Lululemon achieves its forecast revenue range for 2021, it would move into third spot on that list next year.

Vancouver-based billionaire Chip Wilson founded Lululemon in 1998. He spent much of a day with BIV's Hayley Woodin in early 2020 for a profile in BIV's Retirement 2020 magazine