Lululemon Is Firing On All Cylinders

Lululemon Athletica's LULU got its investors excited with its second-quarter results along with a raised 2021 outlook as its sales and margins soared.

Q2 Figures

For the quarter that ended in early August, the company smashed expectations in style. Adjusted earnings increased 123%  as they jumped to $1.65 per share compared to $0.74 per share a year ago. Net revenue surged 61% YoY to $1.5 billion, as store traffic resumed with sales at its company-operated stores rocketing 142% to $695.1 million. All in all, these figures reflect a dramatic rebound from its pandemic lows when coronavirus-related store closures dragged down its results.

The CFO Meghan Frank evaluated that the performance was driven by a strong response to the product offering, improved store productivity, and sustained strength e-commerce strength that allowed the company to become more profitable as it scaled its revenue base. Gross profit landed at 58% of sales, setting another multi-year record whereas operating margins improved to blistering 20.1%, resulting in the operating income soaring 134% to $291 million.

Beating Wall Street Expectations

Wall Street was expecting strong growth figures, with sales likely to rise by about 50% compared to 2020's unusually weak Q2. But the chain blew through even upgraded forecast that executives issued back in early June as sales skyrocketed due to customer traffic and digital sales going beyond last year's record levels. In a nutshell, COVID-19 variant pressures didn't dent growth, and revenue gains accelerated by expanding on a two-year basis at a 28% rate compared to 25% three months ago.

Successfully Navigating Through Supply Chain Challenges

Despite facing higher transportation costs, supply disruptions, and increased wages, the company managed to navigate through this challenging environment without a hitch. While there were some supply chain disruptions and higher transportation costs, profit margins continued soaring. A surging revenue base, a steady drumbeat of new innovative product releases, and a continued tilt in demand toward premium products did a great job in offsetting higher expenses.

Even Better Days Seem To Be Ahead

After its margins jumped to new highs, it's not surprising that the company raised its sales and revenue guidance. For the full year, management now expects the company to generate net revenue of $6.19 billion to $6.26 billion and adjusted earnings per share of $7.38 to $7.48 in fiscal 2021. The prior forecast for revenue was in the range between $5.825 billion to $5.905 billion and adjusted EPS were expected between $6.73 to $6.86.

Lululemon is gearing up for a potentially huge holiday quarter as demand for its premium athleisure products continues to rise. In a nutshell, the company benefited from the pandemic as people turned to more comfortable clothes during lockdowns, but this trend is set to persevere in the post-COVID world as well, as consumers remain interested in functional fitness apparel that helps them protect their health and wellbeing.

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