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Lululemon Continues to Grow, But Mirror Could Be a Headwind

·4 min read

Lululemon Athletica continues to win the activewear race.

The Vancouver-based athletic apparel and accessories firm reported quarterly earnings Thursday after the market closed, improving on top and bottom lines and raising the company’s full-year guidance.

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“Our third-quarter results demonstrate the ongoing strength of Lululemon and the tremendous growth potential of the business in both the near and long term,” Calvin McDonald, the firm’s chief executive officer, said in a statement. “We are pleased with our early holiday season performance and how the Lululemon brand continues to resonate in markets around the world.”

Lululemon’s at-home fitness system Mirror added free weights to the assortment in November. - Credit: Courtesy Photo
Lululemon’s at-home fitness system Mirror added free weights to the assortment in November. - Credit: Courtesy Photo

Courtesy Photo

But Lululemon revealed headwinds within Mirror, the at-home fitness system the company purchased last year, lowering the business’ full-year revenue guidance as a result, causing its shares to fall about 2 percent in after-hours trading.

The company is now anticipating revenues for Mirror, which most recently expanded in Canada and McDonald said represents about 3 percent of Lululemon’s total annual revenues, to be in the range of $125 million to $130 million for the year, down from previous estimates of $150 million.

“Mirror was offering heavy promotions in Q3 and in Q4 to date ([about] 30 percent off discounts, Cyber Monday extended with free shipping [plus] install),” Michael Binetti, an analyst at Credit Suisse, wrote in a note. “We see risk that Lululemon will have to adjust the carrying value of Mirror lower, or that guidance for another year of potential dilution on its Q4 call in March could create an overhang for the stock (though only a partial offset to an otherwise good update for the core business, in our view).”

Still, for the three-month period ending Oct. 31, Lululemon’s total revenues increased 30 percent to $1.45 billion, up from $1.1 billion a year ago. In North America, revenues grew 28 percent, while internationally sales surged 40 percent during the quarter, year-over-year.

Total comparable sales rose 27 percent in the quarter, compared with a year ago, while comparable store sales were up 32 percent during the same time frame. Direct-to-consumer net revenues also increased 23 percent during the three-month period, year-over-year.

The company logged nearly $188 million in net profits as a result, up from $144 million last year.

“Our teams continue to execute at a high level, which has enabled our strong Q3 performance and the upward revision to our guidance,” Meghan Frank, Lululemon’s chief financial officer, said in a statement. “We are pleased with these results given the ongoing, industry-wide supply chain issues we continue to navigate. While there are several large-volume weeks ahead of us, we feel well positioned for a strong end to 2021.”

Lululemon is now anticipating revenues for the current quarter to be in the range of $2.12 billion to $2.16 billion, with diluted earnings-per-share between $3.24 and $3.31 each. For the full 2021 fiscal year, the retailer expects net revenues in the range of $6.25 billion to $6.29 billion, with diluted earnings-per-share in the range of $7.38 to $7.45 for the year.

McDonald told analysts on Thursday evening’s conference call that this year’s Thanksgiving Day was the company’s highest volume e-commerce day ever. The CEO added that the company was able to hire roughly 7,000 new associates in the lead-up to the holidays, despite the current tight labor market.

Other highlights include Lululemon’s resale program Like New, which the retailer launched in April. In September, Lululemon revealed that it would outfit Team Canada in the Olympic and Paralympic Games through 2028. The company also previously revealed a line of yoga mats and bags made from mushrooms, coming in early 2022.

McDonald addressed supply chain pressures on the call, including additional air freight expenses, but also said that despite summer factory closures in Vietnam, inventory was up 22 percent for the quarter, year-over-year.

A Lululemon store in Hong Kong. The retailer is planning on expanding its retail footprint internationally with about 40 new stores this year. - Credit: Sipa USA via AP
A Lululemon store in Hong Kong. The retailer is planning on expanding its retail footprint internationally with about 40 new stores this year. - Credit: Sipa USA via AP

Sipa USA via AP

The retailer ended the quarter with $993 million in cash and cash equivalents and 552 company-operated stores. Lululemon said it is on track to open between 40 and 45 new stores internationally this year.

Shares of Lululemon, which closed down 2.13 percent Thursday to $416.92, are up 12.9 percent, year-over-year.

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