Lululemon earnings, revenue exceed expectations

Shares down slightly after hours

Lululemon's stores outside North America are increasingly contributing to the company's profit. This store is in Singapore | Glen Korstrom

Vancouver-based leisurewear giant Lululemon Athletica Inc. (Nasdaq:LULU) released strong third quarter financial resuts after markets closed December 9.

The company's profit, or net income, rose to US$187.8 million in the three months ended October 31, up from US$143.6 million in the same quarter a year ago.

On an adjusted basis, that translated into US$1.62 per share, which was more than the US$1.41 per share that analysts, in a Refinitiv survey, had expected. 

Quarterly revenue was US$1.45 billion, compared to nearly US$1,12 in the same quarter a year ago – a 29.8% jump. Analysts had expected revenue to be US$1.41 billion in the quarter.

The company also projected that net revenue in its fourth quarter will be between US$2.125 billion and $2.165 billion, which is largely in line with what analysts expected.

The company's share price initially rose after hours, but then retreated to be down by more than 2%, during a conference call with analysts that started at 2 p.m. Pacific Time.

That decline may have been becuause the company slashed its forecast for 2021 revenue from its Mirror division to be between US$125 million and US$130 million, down from US$250 million to US$275 million. This puts Mirror as being responsible for little more than 2% of Lululemon revenue.

Lululemon is projecting its fiscal 2021 revenue will be between US$6.250 billion and $6.290 billion. 

In July, 2020, Vancouver-based Lululemon spent US$500 million to buy Mirror – a New-York-based, in-home fitness company.

Mirror’s marquee product is a device that appears to be a standard mirror, unless it is turned on.

Users activate their Mirror to enjoy augmented reality. A fitness instructor could appear – wearing Lululemon clothing, and ready to guide the user through a workout.

The Mirror could also show videos that include Lululemon representatives, or community events.

"It was surprising that Mirror's sales projections were significantly lower than expected," said Retail Insider Media owner and retail consultant Craig Patterson. 

"I suspect that is temporary, unless the Mirror concept ends up being a flop with consumers."

Patterson added that he believes Lululemon's Mirror acquisition has improved how consumers perceive the company's brand.

"2021 has been a challenging year for digital fitness," said Lululemon CEO Calvin McDonald on his company's conference call.

"We will not chase growth at any cost, we simply don't need to, but we will invest to define our unique proposition and to bring MIRROR to market through our owned marketing channels."

He said the company has 152 Mirror stores in the U.S., and about 48 in Canada. Many of those stores are attached to Lululemon locations. Globally, Lululemon has 552 stores.

McDonald lauded Lululemon's early holiday-season performance, and how the Lululemon brand is increasingly becoming known worldwide. While Lululemon's profit increased 28% year-over-year in North America, it increased 40% internationally in the third quarter.

"We are energized by the exciting opportunities ahead, and I'm proud of our teams across the globe for their passion and agility," McDonald said. 

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, barring any other changes.

Lululemon shares closed the December 9 trading day down 2.13%, at US$416.92, up 19.8% from its 2020 closing price of US$348.03.

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. •