Lululemon stretches profits in Q4, but hedges 2017 outlook

A stronger focus on product innovation and digital initiatives contributed to gains during Lululemon’s fourth quarter, but a slow start to the year impacted the company’s expectations for Q1 2017.



For the 13-week period ended January 29, 2017, Lululemon’s net revenue increased 12% to $789.9 million from $704.3 million in the fourth quarter of fiscal 2015. This exceeded analysts expectations of $783.32 million. The company reported $1.00 earnings per share for the quarter compared to $0.85 for the fourth quarter of fiscal 2015, however, this just missed the analyst consensus of $1.01.



The retailer’s profits rose 21% to $427.9 million.



Total comparable sales, which includes comparable store sales and direct-to-consumer, increased 8%. Specifically, same-store sales increased 6%, and direct-to-consumer net revenue jumped 12% to $164.3 million.



For fiscal year 2016, Lululemon’s net revenue increased by 14% to $2.3 billion from $2.1 billion in fiscal 2015. Total comparable sales increased 6%. Same-store sales rose 6%, and company-operated stores open for at least one year averaged sales of $1,521 per square foot.



Meanwhile, direct-to-consumer net revenue increased 13% to $453.3 million. The chain’s gross profit increased 20% to $1.2 billion.



At the end of fiscal 2016, Lululemon operated 406 stores, and 51 showrooms, including 16 Lululemon showrooms in North America, 18 internationally and 17 ivivva showrooms.



"2016 marks a milestone year where our successful execution against long-term strategies returned the company to positive operating income growth for the first time in three years,” said Laurent Potdevin, CEO, Lululemon. “These results reflect our strong brand and solid foundation now in place to drive our future performance.”



However, performance for the first quarter of 2017 is not shaping up to be as strong. The company expects net revenue to be in the range of $510 million to $515 million based on a total comparable sales decrease in the low-single digits.



"Although we’ve had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future,” Potdevin added.



Looking ahead to the full fiscal year, Potdevin predicted that net revenue will be in the range of $2.550 billion to $2.600 billion based on a total comparable sales increase in the low-single digits. The company also plans to open up to 50 new company-operated stores, with total square footage expanding nearly 12%. Fifteen stores are expected to be opened in international locations.