What Is Driving Higher Revenue And Profitability Expectations For Lululemon Athletica In Q1 2019?

by Trefis Team
Lululemon Athletica
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Lululemon Athletica (NASDAQ: LULU) is expected to release its Q1 2019 results on June 12, 2019, followed by a conference call with analysts. As per Trefis estimates, the company is expected to report revenue of $755 million in Q1 2019, marking y-o-y growth of over 16%. Higher revenue is likely to be driven by new store openings, strong comparable store sales, healthy growth in direct to consumer (digital) sales due to increased traffic and better conversion rates, and an increase in the wholesale business. However, on a sequential basis, revenue is expected to decline sharply due to the seasonality factor, as revenues are highest in the fourth quarter of a year owing to the holiday season. Earnings are expected to come in at $0.70 per share in Q1 2019, higher than $0.55/share in Q1 2018, driven by lower product costs and favorable mix of higher margin products.

We have summarized the key expectations in our interactive dashboard – How is Lululemon expected to fare in Q1 2019 and what is the full year outlook? In addition, here is more Trefis Consumer Discretionary Services data.

A Quick Look at LULU’s Revenue Segments

Lululemon reported total revenue of $3.29 billion in FY 2018. Key revenue segments are:

  • Company-operated stores: $2.13 billion revenue in FY 2018 (65% of total revenue). This includes sale of yoga wear, running apparel, training apparel, and sports-wear for women from the company’s retail stores.
  • Direct to consumer: $0.86 billion revenue in FY 2018 (26% of total revenue). This includes the net revenue generated from e-commerce website www.lululemon.com, other country and region-specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the distribution centers or other retail locations.
  • Other: $0.3 billion revenue in FY 2018 (9% of total revenue). This includes sales from temporary locations, sales to wholesale accounts, showrooms, through license and supply arrangements, and warehouse sales.

A] Revenue Trend

Company-Operated Stores

  • Store revenues largely increased through most of the recent quarters, mainly due to net opening of 36 new stores during FY 2018 spread across North America, Asia Pacific, and Europe.
  • Along with revenue from new stores, segment revenue growth in Q1 2019 would be driven by strong comparable store sales due to higher footfalls and better conversion rates.
  • Closure of ivivva stores following restructuring would partially affect revenue growth rate in Q1.


  • Digital sales have been continuously rising due to increased traffic on LULU’s e-commerce websites, improved conversion rates, and increased dollar value per transaction.
  • With increased digitization, higher traffic on the company’s website and mobile apps, along with a rising share of online sales in the company’s top line, the segment growth trend is expected to continue in Q1 2019.

Other Revenue

  • Other revenue has also steadily increased due to increased number of temporary locations, including seasonal stores, increase in net revenue from existing outlets, and sales to wholesale accounts.
  • The rising trend is expected to continue in Q1 2019, to be partially offset by lower net revenue from showrooms, primarily due to a decreased number of showrooms.

B] Total Expense and Profitability Trend

On an absolute basis, total expenses have witnessed a rising trend due to increase in cost of sales and SG&A expense, along with higher tax outgo. However, as a % of revenue, LULU has been able to manage its expenses efficiently.

  • Cost of Goods Sold: Cost of sales steadily increased through recent quarters due to cost related to the product team departments and distribution centers. However, COGS as a % of revenue decreased, driven by lower product costs, favorable mix of higher margin products, and lower markdowns.
  • SG&A: SG&A has increased through recent quarters due to higher employee costs, expenses related to new operating locations, digital marketing expenses, and branding cost. However, SG&A as a % of revenue decreased due to much higher growth in the top line.
  • Effective Tax Rate: Though the effective tax rate witnessed an increasing trend through the quarters of FY 2018, it was lower on y-o-y basis, due to implementation of TCJ Act and higher tax deductions. The Y-o-Y effective tax rate is expected to remain stable in Q1 2019 with no major deductions, restructuring, and rate changes expected.

Net income margin has largely increased through 2018 (except a slight dip in Q3), driven by better cost management and higher revenue growth. The trend is expected to continue in Q1 2019, as lower markdowns and higher digital sales is expected to improve the bottom-line.

Full Year Outlook

  • For the full year, we expect revenue to increase by about 14.6% to $3.77 billion in FY 2019.
  • Higher revenue is likely to be driven by an increased focus on expanding its digital presence, higher customer traffic, strong comparable store sales in the retail business and growth in the wholesale business, along with investment in improving the company’s brand image.
  • Net income margin is expected to increase from 14.7% in FY 2018 to 15% in FY 2019, driven by a focus on high-margin brands, lower markdowns, and lower product cost.

Trefis has a price estimate of $183 per share for LULU’s stock. We believe that impressive revenue growth trends, aggressive expansion of its digital ecosystem, strong same-store sales growth, focus on high margin brands and rising profitability, coupled with an increasing focus on enhancing shareholder returns through buybacks, would likely provide support to LULU’s stock price going forward.


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