Lululemon increases outlook as sales surge – what’s driving its success?

It’s no secret that fashion retail is having a tough time, many businesses are still struggling with too much stock (an overhang of the pandemic and subsequent supply chain issues), inflation is driving up the cost of raw materials, along with dampened consumer demand and the cost-of-living crisis…the list goes on.

Money is no longer cheap, and highly leveraged businesses are struggling with increased interest payments or worse, creditors calling in debt. A strong balance sheet, along with the ability to grow both sales and profits is highly desirable in today’s market. 

Some fashion businesses are having success with refinancing their debt, New Look is understood to be closing in on a deal to refinance £100m worth of its debt. But others, such as fashion retailer Joules, have hit the buffers. The lifestyle retailer was nearly £114m in the red when it called in administrators in November. 

But whilst some fashion businesses are struggling, others are soaring. M&S has finally got to grips with its fashion offer and turnaround strategy and is now reaping the benefits. Alongside well-run businesses such as Next, whose strong balance sheet is enabling it to go on the acquisition trail, with news breaking on Friday that it has increased its stake in fashion retailer Reiss to 72%, valuing the premium fashion business at almost £400m.

Sales surge at Lululemon

Athleisure brand Lululemon is on a similar track. Its latest results revealed that Q2 2023 net revenue jumped 18% to $2.2bn, with net sales from international (including the UK) soaring 52% year-on-year, lifting 11% in North America.

Gross profit grew 23% to $1.3 billion and gross margin increased 230 basis points to 58.8%. Income from operations rose 19% to $479.3 million, with adjusted income from operations increasing 23%. Operating margin grew 20 basis points to 21.7%, with adjusted operating margin growing 80 basis points.

Company operated store revenue was $1.1bn, compared with $903.1m in Q2 last year. Ecommerce revenue rose 15.2% year-on-year to $893.7m in the quarter, compared with $775.4m in 2022.

The Company ended the second quarter of 2023 with $1.1 billion in cash and cash equivalents and the capacity under its committed revolving credit facility was $393.6 million. It currently has 672 stores globally.

2023 Outlook

For the third quarter of 2023, the Company expects net revenue to be in the range of $2.165 billion to $2.190 billion, representing growth of 17% to 18%. 

For 2023, it forecasts net revenue to be in the range of $9.510 billion to $9.570 billion, representing growth of 17% to 18%. 

“I am proud of how our teams continue to deliver on our vision and offer an exciting pipeline of new products and experiences to our guests around the world,” says Lululemon CEO Calvin McDonald. 

“Our continued ability to gain market share and bring new customers into the brand illustrates the significant runway ahead for lululemon,” he adds.

What’s the secret to Lululemon’s success?

In 2019, Lululemon announced its ‘Power of Three ×2’ strategy, a growth plan which outlined plans for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. 

The key pillars of the plan were product innovation, guest experience, and market expansion and the growth strategy included a plan to double men’s, double direct to consumer, and quadruple international net revenue relative to 2021.

And two years in, the proof is in the pudding. “Success is the result of a multi-faceted approach that includes a focus on quality, innovation, customer-centricity, branding, retail experience, digital presence, and sustainability,” says brand marketing and retail strategist, N. Azam Kashmiri.

“By aligning with the athleisure trend and leveraging influencer collaborations, the company has managed to create a thriving brand that resonates with a diverse customer base. Lululemon’s ability to adapt to changing consumer preferences while staying true to its core values has been key to its continued success in the competitive athletic apparel market,” he adds in a post via LinkedIN.

Kashmiri puts Lululemon’s success down to 7 key factors:

1. Customer-Centric Approach

“Lululemon places a strong emphasis on understanding its customers’ needs. Through in-depth market research and customer feedback, the company tailors its product offerings to meet the demands of its target demographic, which primarily consists of active women. This customer-centric approach has resulted in a loyal customer base.”

2. Branding and Lifestyle

“Lululemon has managed to create a lifestyle brand rather than just an apparel company. Its branding emphasises values such as mindfulness, well-being, and community. Lululemon stores often host yoga classes and community events, fostering a sense of belonging among customers.”

3. Retail Experience

“The company’s physical retail stores play a vital role in its success. Lululemon stores are designed to provide a unique and immersive shopping experience. Knowledgeable staff, personalised recommendations, and in-store events create an atmosphere that encourages customer engagement and loyalty.”

4. E-commerce and Digital Presence

“Lululemon has successfully expanded its online presence, allowing customers to shop conveniently from anywhere.”

5. Athleisure Trend

“Lululemon has benefited from the rise of the athleisure trend. As people increasingly adopt active and health-conscious lifestyles, the demand for versatile, comfortable, and stylish activewear has surged. Lululemon positioned itself perfectly to cater to this trend.”

6. Sustainable Initiatives

“The company has recognised the importance of sustainability and has made efforts to integrate eco-friendly practices into its supply chain and products.”

7. Celebrity Endorsements and Influencer Collaborations

“Partnering with fitness influencers and celebrities has helped Lululemon expand its reach and appeal to a broader audience. Collaborations with well-known figures in the fitness and fashion industries.”

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