Lululemon on Tuesday reported surprise revenue growth, despite lockdowns during the height of the coronavirus pandemic, as stores started reopening in the fiscal second quarter and consumers stocked up on workout apparel and yoga accessories.
But its stock fell by more than 6% in after-hours trading as investors looked for more. The bar on Wall Street was high ahead of the Tuesday report. As of Tuesday’s market close, Lululemon shares were up by more than 51% so far this year, giving it a market cap of $45.5 billion.
CEO Calvin McDonald said the retailer is “cautiously optimistic” about the rest of the year. But Lululemon is not offering a 2020 outlook at this time. It said almost all, 97%, of its stores globally have reopened to date and store sales are averaging about 75% of their levels a year ago.
Here’s how the retailer did for the quarter ended Aug. 2 compared with what analysts were expecting, based on Refinitiv data:
Earnings per share: 74 cents, adjusted, vs. 55 cents expected
Revenue: $902.9 million vs. $842.5 million expected
On an unadjusted basis, Lululemon’s net income shrank during the second quarter to $86.8 million, or 66 cents a share, from $125 million, or 96 cents a share, a year earlier. Excluding one-time charges, the company said it earned 74 cents per share, topping expectations for 55 cents.
Its revenue rose about 2% to $902.9 million from $883.4 million a year earlier, topping expectations for $842.5 million.
Its online sales were up 157% year-over-year.
But sales at company-operated stores dropped 51% from the same quarter last year to $287.2 million, while Lululemon’s second-quarter gross margin decreased 0.8 percentage points, to 54.2%.
Lululemon ended the period with $523 million in cash and cash equivalents on its balance sheet.
At the end of June, Lululemon announced its plans to buy the at-home fitness company Mirror, which sells a $1,500 high-tech mirror to stream live workout classes. It closed on the transaction in early July. Lululemon is looking to do more in the connected fitness space, growing beyond its clothing business, especially with more consumers stuck at home during the pandemic looking for ways to break a sweat.
Planning for the all-important holiday season, CEO McDonald said Tuesday that Mirror’s mirror will be available for sale in 10 to 15 of the company’s stores by early in the fourth quarter, and Lululemon is also beginning to market it online and on social media channels. The company expects Mirror to do more than $150 million in revenue this fiscal year, up from initial expectations of over $100 million.
“We’ll set the stage for next year, and we expect to be more aggressively leveraging the power of the Lululemon ecosystem to grow the Mirror business,” McDonald said Tuesday during a conference call with analysts.
Lululemon also said it plans to move planned e-commerce investments, including in its customer service call centers, even earlier, to prepare for the upcoming holidays. It also plans to open roughly 70 holiday pop-up shops, up from 51 last year. In some instances, it said, it might have two locations in the same mall.
Lululemon is proving to be a bright spot in an apparel industry that has been pummeled by the pandemic in 2020 and has seen a number of bankruptcies, including by J.Crew,Brooks Brothers, Neiman Marcus and J.C. Penney. It is one of the few companies that sells clothing that is still looking to open new stores, aiming for 30 to 35 new locations this fiscal year.