In a new interview with Yahoo Finance anchor Alexis Christoforous, Lululemon CEO Calvin McDonald discusses supply issues, worker shortages, the holidays, and the company's recent purchase of fitness company Mirror.
ALEXIS CHRISTOFOROUS: Calvin McDonald is the CEO of Lululemon. He runs a company with over 500 stores in 17 countries. Under his leadership, Lululemon has delivered double-digit revenue growth. Its clothing has moved well beyond just yoga pants. It's become a favored work-from-home outfit. And as more people return to the office, they want to stay casual, and they're taking their Lululemons with them.
Calvin, it's great to see you. Thanks so much for being with us for this All Markets Summit. I know that Lululemon has seen explosive growth during the pandemic, second quarter revenues coming in at $1.45 billion, an increase of more than 60% year-over-year. But I also know that you get a lot of product from Vietnam. And I'm curious to know how these supply chain issues are impacting Lululemon.
CALVIN MCDONALD: Yeah. Thanks for the question and the time today. As we shared in our last guidance report, about 30% of our product is sourced from Vietnam. And we guided about 20% of our back half receipts-- have been impacted by the shutdown.
Still included in our guidance of 25% growth for the year-- factors in the situation in Vietnam with the manufacturing coming online, which it has. We have very good relationships with our vendor partners, and we're supporting them. And although we know, as we saw in Q2, there's great demand for our product and we definitely didn't satisfy all of it, we're pleased with the results that the team is doing to try to get the product here as best as we can.
ALEXIS CHRISTOFOROUS: So I know that you are forecasting a strong end to the year. There seems to be no relief in sight from this supply chain crisis, even though now the port in Los Angeles is running 24/7. Is that starting to change your outlook for the rest of the year?
CALVIN MCDONALD: We guided 24% to 25% for Q3, two-year CAGR. We guided 25% for the year, and we stand by those guidance numbers at this point in time.
Way back when the pandemic started, we took a leadership position across all of our stakeholders. We paid our rent. We paid our employees and didn't, you know, lay off any. And we honored every PO that we had at this point in time.
And I think that just puts our business in a good position with our relationships with our partners. And we're supporting them through these difficult transitioning periods. And as they come online, I think those goodwill and investment in relationships is putting us in a well-- in a good position. And we're leveraging other avenues, like airfreight, to get the product here as we need to to satisfy the demand that we're seeing with our guests.
ALEXIS CHRISTOFOROUS: So you sound pretty confident that you're going to be able to meet demand, that you're going to have the inventory to meet demand during the critical holiday sales season. Is that fair to say?
CALVIN MCDONALD: I think it's fair to say we'll have-- I'm confident we'll have the inventory to support the revenue that we've guided to. As we indicated, we are in a very strong position with great momentum in the brand and in the business. And I definitely-- we're not satisfying all the demand that we have in what we've guided to. And the team's doing a wonderful job getting the product here to meet the guidance numbers. But there's definitely missed opportunity as a result of the supply chain. I wouldn't want the audience to think that we're satisfying every demand that we have. But we're-- the team is doing a wonderful job in satisfying to what we've guided to.
ALEXIS CHRISTOFOROUS: What are some of the harder items that customers are going to have to come by, or maybe they might want to secure here earlier in the season rather than waiting to the last minute?
CALVIN MCDONALD: I mean, it's-- Vietnam's an important sourcing region for us and crosses a number of our product categories. We do a lot of dual sourcing around the globe. So there isn't one product in particular that I would say is 100% sourced in Vietnam. And we don't anticipate to have supply.
But I think the general theme this holiday is shop early applies to everyone. And as I said, we anticipate to have inventory of our product. There isn't one that I'd call out in particular. But I do think, you know, guests should shop early. And the team is doing a wonderful job in trying to continue to satisfy and help the flow of goods right up to and post holiday period.
ALEXIS CHRISTOFOROUS: You mentioned employees a moment ago. How are you in terms of staffing? Did you have to bring on more people for the holiday shopping season and for the higher demand that you're anticipating?
CALVIN MCDONALD: We are actively out recruiting, like I know many are. What we shared in Q2 was that our store productivity numbers hit our '22-- 2019 levels prior to the pandemic, which was a few quarters ahead of our expectations. So what that says is we just have great momentum in the business across our entire omni-system and touchpoints. Our e-commerce while our stores came back to those pre-pandemic productivity numbers-- so very pleased with the balanced growth we're seeing, which puts us in a good position to want to recruit and hire. We equally increased our minimum wage to $15 and $17. And with the bonus system in place, you can add $3 to $6 per hour.
So we feel we're competitively positioned. But it's a challenge right now. We're looking to hire 8,000 incremental seasonal employees throughout the holiday period. The teams are actively doing that. It's harder than it has been in the past.
But again, I think some of the investment we've made in teams, in the culture, and what we stand for as a business positions us well. And we're seeing good numbers. But it's definitely a challenge. It's something that the team is continuing to work at.
ALEXIS CHRISTOFOROUS: Why do you think that is, or what are you hearing, maybe, from potential hires or from your current staff about why finding workers this year is so challenging?
CALVIN MCDONALD: I mean, I think that's an interesting dynamic, to wonder, where has the workforce for certain industries, be it retail, hospitality gone? Where have they transitioned to? And I think there's a variety of factors. But I believe, one, we've seen below-industry churn. So we're pleased that our current workforce and the investments we made has served us well.
And then a successful business always looks to bring in new talent. And it's harder. It's not impossible. But I think there's probably a variety of factors of why people are making the personal choice not to enter the workforce at this point in time. And businesses just need to be creative and work harder. And I think the good brands with the right culture that invest and put people first will be the ones that win and then position themselves to be able to support the guest needs through the holiday.
ALEXIS CHRISTOFOROUS: I mean, undoubtedly, Lululemon was a beneficiary of the whole work-from-home culture, as people really flocked to that-- this athleisure wear. And I'd love to know how people's buying habits have changed for you in particular since the height of the pandemic, especially now that we have more people going back to the office.
CALVIN MCDONALD: I think there were three primary driving factors that we saw accelerated through the pandemic. I don't believe they are new, and I don't think they're going to go away. I think what the pandemic did was accelerate the path that we are already on. And those three are the importance and expectation of what guests have with apparel-- so I think of the versatility, the functionality, and quality of what guests are buying definitely changed.
Two, people are just living a more or trying to live a more healthier lifestyle they're aware of and they're sweating more and they're, you know, more conscious of the notion of well-being. Those are important factors. And three is how they buy, the adoption of online and willingness to do that.
And all three of those play to the strength of our brand. So I see it as an acceleration of where the guest was already heading. And it puts us in a good position to be able to leverage the strengths and unique positioning of the brand to satisfy those needs.
ALEXIS CHRISTOFOROUS: I want to switch over to pricing for a minute because we're seeing inflation creep up into every corner of our economy, the supply chain crisis, of course, one of the big reasons why. How are you able to manage costs right now? And have you had to pass any of those costs along to the consumer yet?
CALVIN MCDONALD: Yeah. We continue to monitor, you know, sort of the dynamic nature of pricing in the market. We're a premium position brand. We have good relationships with our manufacturing partners. And always, there's trade-off in cost, inputs, and outputs for a business. Any price changes over the next few quarters were embedded in the guidance, and there's been no change to that.
You know, we declared the incremental cost of airfreight in particular. And we believe that's the right investment in order to get the product here to satisfy the demand and the relationships we have with the guests. And we'll continue to monitor and look for both opportunity and needs of the business. But at this point in time, we've guided to the impact that we see, and we'll continue to monitor.
ALEXIS CHRISTOFOROUS: Now, I know you bought the connected fitness company Mirror during the pandemic for $500 million. Lots of people now going physically back to the gym, how are things looking at Mirror right now? And what are your expectations for that part of the business this holiday season?
CALVIN MCDONALD: We're excited about the holiday season. We have some new product launches that we'll be sharing in the next few weeks. We introduced it to Canada just a couple of weeks ago and have seen a very strong response by Canadians to the product. We will be fully in 200 stores come the holiday with key leads in all of those that are, you know, demonstrating the product and driving the awareness around it because it really is-- you know, awareness is a big opportunity behind it.
So we're excited of how we're positioned for the holiday and what we're doing to continue to invest in-- behind that product. The acquisition and the positioning of Mirror was all about strengthening our community and relationship with our guests. We know the more that they engage and sweat with us, the more they spend, and it drives the overall loyalty. And that vision hasn't changed. In fact, I'm more excited about it and the potential.
And I believe in hybrid fitness. I'm an active, you know, fitness junkie myself. And I think that we're going to continue to see, you know, our guests go back to physical studios. I think they're going to continue to work out outside. And they're going to continue through the convenience of at-home. And Mirror's uniquely positioned as your at-studio/at-home device. And I'm confident that the hybrid fitness strategy will work and we're well-positioned with the product.
ALEXIS CHRISTOFOROUS: All right. Well, Calvin McDonald, CEO of Lululemon, thanks so much for spending time with us-- and wishing you a great holiday season.
CALVIN MCDONALD: Great. Thank you.