What's going on?
The stock price of Lululemon jumped more than 10% on Friday after the athletic wear maker reported sales and profits that surpassed Wall Street’s expectations.
What does this mean?
Like most athletic retailers, including Nike and Under Armour, Lululemon has had a tough past year or so. Prior to Friday, its stock was down 25% over the past year as the “athleisure” market became increasingly competitive – making it more difficult to make a profit selling high-end yoga pants and other workout gear. These results offered investors somewhat of a respite from that weakness, and the stock clearly responded well. It is, however, worth noting that Lululemon’s sales still declined – they just didn’t decline as much as feared.
Why should I care?
The bigger picture: This year has been a tipping point for retail – and Lululemon’s future plans epitomize the shift.
Lululemon is closing nearly all of its “ivivva” stores, which sell activewear for girls, and turning ivivva into a brand that will exist almost exclusively online. The brand won’t make as much revenue, but Lululemon hopes that by lowering its costs substantially ivivva could finally become profitable. The shift to online shopping has, of course, been going on for some time, but the high rate of store closures this year shows that 2017 is proving to be particularly brutal for brick-and-mortar retailers, as well as those employed by them.
For the stock: Execution on its ecommerce platform will be important to Lululemon’s future.
Lululemon’s online sales were flat versus a year ago, which is a little discouraging given that it should be in a good position to sell directly to its customers (e.g. it’s not a “middleman” retailer that can be easily undercut by Amazon; instead it has its own brand). Lululemon is planning to invest more in its ecommerce platform, but that will also increases its costs, eating into the company’s profit. Some research analysts are skeptical that it can deliver on this priority in a cost-efficient way.