Lululemon posts ‘remarkable’ earnings, retailer bests pandemic performance: Analyst

Barclays Consumer Discretionary Analyst Adrienne Yih analyzes Lululemon's Q1 earnings beat, how the fitness brand expanded its consumer demographics, growing in different apparel categories, and casualization trends appealing to male customers.

Video Transcript

SEANA SMITH: Well, Lululemon earnings are out, beating the Street's estimates on revenue. You can see shares popping after hours, up just about 2.6%. The company also raising their guidance for the year. We want to bring in Adrienne Yih, Barclays consumer discretionary analyst. And Adrienne, it's good to see you. I know you're bullish on Lululemon. Taking a look at this report, what's your big takeaway?

ADRIENNE YIH: Seana, good to see you. My big takeaway is this is absolutely a remarkable print. The reason I say that is because if you just think about all of the supposed COVID winners, the people who benefited during the pandemic, clearly, clearly, athleisure was one of those categories. So to come out on the other side of this after two years of getting some of the benefits, it is absolutely remarkable that they are one of the single front line retailers that is actually besting their performance during the pandemic and continuing to grow.

DAVE BRIGGS: That's really interesting. Very few companies are COVID winners and reopening winners. How were they able to so successfully make that pivot?

ADRIENNE YIH: So, two things. So, during the pandemic, one of the things that they did is they actually acquired customers, new customers, as we all know, but they acquired them at younger and younger age ranges. If you think about the Lululemon from, say, seven, 10 years ago, or even when they IPOed, it was largely a soccer mom, right? A soccer mom that was probably in her late 30s, early 40s, and well-to-do.

If you go out to any kind of soccer game now, all the way down to these middle schoolers, high schoolers, college-aged young ladies, they're all garbed head to toe in Lululemon. So think about the lifetime value that they've stretched during this period of time.

And then the second piece of it is that they are giving the customer new things to buy with their dollars. So even though she is full up on yoga wear and athleisure, they're giving her footwear. They're giving her tennis, golf, men's. And then they're building through international.

SEANA SMITH: Yeah, the men's business, I know Dave is a big believer in that. And you love Lululemon.

DAVE BRIGGS: It's my goal to wear nothing but Lululemon in life.

SEANA SMITH: It's my goal, too. I know.

DAVE BRIGGS: It's really, I don't have many goals.

SEANA SMITH: I was able to do it during the pandemic, although coming back to the studio, I've had to change up the wardrobe a little bit. But Adrienne, going back to a more serious topic here in regards to Lululemon, you have a price target of 450. Right now, we're trading just above 300, right around 310 a share here after hours. What's it going to take to get to 450?

ADRIENNE YIH: It's going to take the company on its path to power 3 times 2. They just had an analyst day April 20. And they laid out effectively the same goals that they had had in their last five-year plan. By the way, they reached that five-year plan in three years. So they had to reset those goals. And that's to take the business from $6 billion in sales to $12 billion in sales to double men's, to double digital, and then to quadruple their international.

So they really do have to continue to be on that path. But if you think about the growth and the opportunity, both in India and in Asia and greater China, in men's, as we just said, they're kind of at the tip of the iceberg. I'll give you a quick stat here. Their $5 and 1/2 billion in North America is primarily women's, right? So there's about 25% of that is men's. But if you think about Nike's North American Apparel business alone, it's about $5 and 1/2 billion. So that is a crazy rivalry where Lululemon, it's actually at the forefront of that contest.

DAVE BRIGGS: Yeah, they project to double their men's sales this year alone. You mentioned the international potential, but domestically, is there a new product line in the works? What's next for Lulu here?

ADRIENNE YIH: So, for men's, it's all about kind of that-- they call it the to and fro, right? So for you, it'd be the ABC pant. And that line has been tremendously successful. It is something that you can take from the COVID at work at home, and it actually does benefit from return to work. So when we're back in the office or when we're doing meetings, I would say 90% of the people we're meeting with are actually in those kind of ABC pants and then the wear to work.

They are also going to be doing that type of product and starting to slowly introduce that in the women's side of the business. So that's another avenue for them to kind of increase, as I said, per share of wardrobe.

SEANA SMITH: And Adrienne, we're going to get the earnings call. It's expected to get underway in just a couple of minutes from now. What do you want to hear from Lululemon from the executive team on this call?

ADRIENNE YIH: Yeah, it's pretty phenomenal that their second quarter, right, so their second quarter actually raised sales and they raised EPS. Even though their China exposure is fairly de minimis at this point-- it's only low single digit of sales-- I'm very curious to hear what is going on with their China business. Why aren't they down 40% like many of the other two have guided for that region? And I also want to hear how are they faring through the supply chain.

The two big things are going to be their inventory. Everybody's asking about inventory, and then to the extent the potentiality, right, of these promotions. I think you were just talking about RH and talking about the promotionality of the environment. If they don't play ball, maybe they'll lose some share. Lulu does not play the promotional game. And I think that the key here is that their brand is so darn strong, and they have so many new entrants to the brand, that they can continue to drive the full price sale.

DAVE BRIGGS: Very interesting. Adrienne Yih, appreciate you joining us. Thanks so much.