Analysts are confident that the digital heart of Lululemon Athletica Inc.’s post-coronavirus growth plan will put the athletic company in an even better position than the company was in before the pandemic.
Lululemon
LULU, -5.96%
reported fourth-quarter net income of $298.0 million, or $2.28 per share, up from $218.5 million, or $1.65 per share, last year, and ahead of the $2.25 FactSet consensus.
Revenue of $1.40 billion was also up from $1.17 billion last year and ahead of the FactSet outlook for $1.38 billion. Same-store sales soared 20%, including 41% growth in the direct-to-consumer channel.
Lululemon didn’t provide guidance due to the uncertainty from the COVID-19 outbreak.
Lululemon stores in North America, New Zealand and Europe are closed, while stores in Australia are running with reducing hours.
All stores in China except for the Wuhan location are operating with normal hours. Across the rest of Asia, only two stores in Malaysia are closed.
Lululemon has $1.1 billion in cash, no debt, and an untapped $400 million credit revolver. Many retailers have drawn down a portion or all of their credit revolver in order to maintain cash on hand during store closures.
“[W]e have early learnings from China which show us that our business will bounce back,” said Calvin McDonald, chief executive of Lululemon, according to a FactSet transcript of the late Thursday earnings call. “We are not yet back to pre-closing volumes, but the business is getting stronger week-by-week.”
Key to Lululemon’s effort during the coronavirus outbreak is its online channel. Not only does it provide for e-commerce sales, which are facilitated by distribution channels that the company says are still functioning after key supply chain investments.
The company is also hosting pilates, yoga, dance and other classes virtually. Lululemon has added thousands of followers on WeChat in China, and saw 170,000 participants during the first week of closures in North America and Europe.
The strategy has some similarities to the one employed at Nike Inc.
NKE, -1.27%
Read: Nike could come out of the coronavirus pandemic in a position of strength, UBS says
“Our balance sheet allows us to look ahead and continue to plan for growth as we manage the business for day-to-day,” McDonald said.
“[W]e are currently evaluating our expense structure, capital expenditures, and store opening and remodel programs. We are acting now to ensure we can reaccelerate our growth drivers when we are ready.”
All of this taken together are “proof-points that Lululemon should weather the Covid-19 crisis better than most and emerge stronger when the crisis ends,” wrote Susquehanna Financial Group analysts led by Sam Poser.
“Lululemon continues to develop guest relations and drive sales with its digital platforms through the evolving productivity of its customer relationship management capabilities.”
Susquehanna gives Lululemon a positive stock rating with a price target of $240, down from $310.
“We believe that Lululemon’s strong balance sheet and financial flexibility will afford it the option to continue to invest into key, growth-driving initiatives while others in retail shrink to enhance liquidity,” wrote Raymond James analysts. “This leads us to believe that Lululemon will emerge stronger than ever when the current environment normalizes.”
Raymond James rates Lululemon stock strong buy with a $250 price target, down from $300.
BMO Equity Research strikes a more conservative note, with sales reaching $3.5 billion and concern that the company could be reaching a point where further growth could come at the expense of margins. “Consumer pressure points” could restrict the company’s total addressable market as well, analysts say.
BMO rates Lululemon stock market perform with a $175 price target, down from $231 previously.
But UBS analysts maintain confidence that the set up for Lululemon is favorable for the second half of the year when a recovery is possible.
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“Lululemon’s North America e-commerce business growth rate has accelerated since the company closed stores on March 16,” analysts wrote. “Many other brands are currently experiencing sales declines online. We believe this implies the Lululemon brand remains strong with consumers and is well positioned to rebound when consumers are ready to start shopping in stores again.”
Lululemon stock has gained 15.2% over the past year while the S&P 500 index
SPX, -3.37%
is down 10.3% for the period.
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