It was 1998 when Lululemon (NASDAQ: LULU) was founded and starter selling yoga wear. Twenty-two years later and the company operates 460 stores in North America and Europe. It has expanded its range of products, and its loyal customer can now buy everything from yoga pants to t-shirts and jackets. The company had seen several controversies, especially when its founder, Chip Wilson, embroiled in disputes relating to his body weight comments. The founder eventually stepped down from the company's board in 2015.
Despite challenging trading conditions, the company continues to pull through 2020 at full speed. Covid-19 caused many retailers to close their stores resulting in tremendous losses in revenue across the retail industry. Lululemon wasn't an exception – its in-store sales dropped from $583,756 million in the quarter ending August 4, 2019, to $287,201 million in the quarter ending August 2, 2020.
However, dropping store footfall was heavily offset by increased online direct to consumer sales. The company recorded more than 50% growth: $554,302 million in the quarter ending August 2, 2020, compared to $217,636 in the same period last year. The sales mostly slowed in the US, where the company booked lower revenues compared to last year. The Canadian market provided only minor positive correction. The international operations' primary growth was $159,366 million quarter ending August 2, 2020, vs. $115,904 million in the quarter ending August 4, 2019.
The upcoming quarters will remind lululemon about its tax liabilities: the company has been deferring various amounts of corporate and payrolls taxes throughout the year, with f $127.5 million of Canadian corporate tax being the most significant. The demand for its products amongst its female customer has been on a healthy growth path. However, the same couldn't be said about its male customers, as it has seen a 10% drop in revenues for the category.
This year, the company purchased Mirror- a start-up behind $1500 + monthly subscription workout mirror. Lululemon paid $500 million for the chance to get into a rapidly growing premium home device market, aiming to bring more interactivity to the home exercising market. The acquisition may bring additional streams of revenue and cross-channel marketing and sales opportunities.
The company's cash position will undoubtedly continue to be negatively affected, mostly deferred tax payments coming to fruition.
Lululemon remains in a strong position. Yes, the sales in its stores continue to be affected; however, online sales are rapidly growing, and the international markets only showing a glimpse of future potential. The company's products belong to the premium product category and will likely be less affected by the current global economic situation.
The ongoing pandemic is a double edge sword to the company: it's impacting the footfall in its stores while at the same time growing demand for home-based solutions, especially as substitutes to the gym model that is currently at risk.
Lululemon still has vast potential in the global markets. It only started global expansion six years ago, when it opened its first European store. The company still has an enormous untapped market that it will likely to target in the upcoming years.
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