Lululemon reported a fiscal first-quarter sales decline of 17%, as its strong digital business wasn’t enough to offset the losses from its stores being temporarily shut due to the coronavirus pandemic.
The yoga pants and sports bra maker also suffered from the other shops that it sells in being shut, it said.
Still, as more people stocked up on workout gear and comfortable clothing during the pandemic, Lululemon Chief Executive Calvin McDonald said the retailer saw one of its largest market share gains ever during the quarter, citing NPD Group data. The company said its women’s bottoms, including its leggings, were some of the best sellers.
As of June 10, it said 295 of its 489 stores globally have reopened for business, and about 50% of stores in North America. It expects almost 100% of stores to be open again by the end of this month.
And so far, in North America, sales at reopened locations are exceeding expectations, management said.
But Lululemon also is not anticipating returning to earnings growth, on a year-over-year basis, until the fourth quarter. And it expects its gross margins to be more pressured during the second quarter.
Lululemon shares were recently down around 7% in after-hours trading Thursday.
Here’s how the company did during its fiscal first quarter ended May 3:
- Earnings per share: 22 cents
- Revenue: $651.96 million
Net income came in at $28.6 million, or 22 cents per share, compared with $96.6 million, or 74 cents a share, a year ago.
Total revenue fell 17% to $651.96 million from $782.3 million a year ago.
It didn’t report same-store sales because of the temporary store closures.
Analysts were expecting the company to earn 23 cents per share on revenue of $688.4 million, according to Refinitiv estimates. However, the impact from the Covid-19 crisis makes these estimates difficult to compare to actual earnings.
The company said its e-commerce sales totaled $352 million, making up 54% of total revenue, compared with $209.8 million, or 26.8% of total revenue, a year ago.
“Our e-commerce growth began to accelerate late March and April,” McDonald said on an earnings conference call. “We moved into the early recovery phase, a new normal emerged, and we were encouraged to see how quickly our guests were embracing both working and sweating from home.”
Online sales surged 125% during the month of April alone, with that trend continuing into the second quarter, he added.
“There’s no doubt, coming out, that our online business I believe will find a new norm that’s higher than where we began,” the CEO said.
Its gross margin fell to 51.3% of net revenue, compared with 53.9% a year ago. Lululemon said the decline was due, in part, to higher costs to run its distribution centers as online orders surged.
Lululemon said its inventory jumped 41% to $625.8 million during the quarter. It said it remained committed to its vendor partners and, therefore, did not cancel orders during the period.
But McDonald cautioned the retailer should not have to use heavy promotions to try to get merchandise off the shelves, as many other companies are being forced to do with stale tops and bottoms.
“We benefit from … a relatively high percentage of core product, about 40% overall, that has a shelf life beyond the current season and with limited markdown risk,” he said.
The company is not currently offering an outlook for 2020.
It said it had cash and cash equivalents on hand of $823 million at the end of its fiscal first quarter, with $398.2 million available under its revolving credit facility.
Lululemon shares, as of Thursday’s market close, are up more than 33% this year. The company has a market cap of $40.1 billion.
Find the full earnings press release here.