lululemon (LULU) Displays Solid Run Based on E-commerce

The coronavirus pandemic has transformed the retailing industry, putting e-commerce in the forefront as consumers’ preference is shifting to online shopping. lululemon athletic inc. LULU is one retailer that has been benefiting from the trend. The company’s first-quarter fiscal 2020 results reflected strong growth in the e-commerce front in March and April, which continued into May.

lululemon reported lower-than-expected top and bottom lines in first-quarter fiscal 2020. Results were primarily marred by extended store closures due to the COVID-19 outbreak. However, direct-to-consumer sales, through its website and app jumped 70% to $352 million and accounted for 54% of total revenues in the fiscal first quarter.

We note that shares of this Vancouver, Canada-based company have rallied 96.1% in the past three months compared with the industry’s growth of 39.9%. This Zacks Rank #3 (Hold) stock has also comfortably outperformed the S&P 500 Index’s rise of 28.7% and the broader sector’s growth of 34.1% in the same period. In all likelihood, lululemon, with a long-term earnings growth rate of 18.3%, indicates growth ahead.

 

Factors Driving the Stock

Despite the soft results, the company continued to witness momentum in its e-commerce business as most stores remained closed in the fiscal first quarter. Notably, it has been investing in websites and mobile app for the last several quarters to enhance the guest experience. These investments have improved functionality, including checkout, navigation, search browse and the speed of our sites. The capabilities clearly paid out during the coronavirus crisis, when the world came to a standstill.

After witnessing lockdowns since mid-March in North America and Europe, the company entered the recovery phase from late March and April. This period led to the emergence of a new normal, with more people embracing working and sweating at home. Consequently, online sales soared 125% in April, with the momentum continuing in the fiscal second quarter. Notably, e-commerce sales increased 170% in Europe and nearly 150% in Australia in the fiscal first quarter.

Meanwhile, in China, the company witnessed positive comps in March as the strength in e-commerce more than offset the declines in stores. Notably, the China market reached the recovery phase in March when other parts of the world were starting to feel the impacts of the virus.

To back growth in e-commerce, the company also moved to quickly harness the power of its flexible distribution network to ensure a high level of service to guests. It recently implemented intelligent sourcing capabilities that use machine learning and artificial intelligence to route e-commerce orders through the distribution network in the most efficient way. This is likely to result in increased delivery speed, minimizing costs and efficiently utilizing inventory pools to help reduce markdowns.

Conclusion

The company has set a great example of robust e-commerce growth amid the pandemic. As the world opens up, it is also reopening stores in a phased manner. As of Jun 11, the company reopened nearly 300 stores across North America, Europe, Asia, New Zealand and Australia. While it is working on the reopening of its store, it expects continued momentum in the e-commerce business in the fiscal second quarter and the year ahead, placing it for growth among its peers.

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BJs Wholesale Club Holdings, Inc. BJ has an expected long-term earnings growth rate of 13.6%. The company sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Activision Blizzard, Inc. ATVI, also a Zacks Rank #1 stock, has an expected long-term earnings growth rate of 18.8%.

Duluth Holdings Inc. DLTH delivered a positive earnings surprise of 19.3%, on average, in the trailing four quarters. It presently has a Zacks Rank #2 (Buy).

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This young company’s gigantic growth was hidden by low-volume trading, then cut short by the coronavirus. But its digital products stand out in a region where the internet economy has tripled since 2015 and looks to triple again by 2025.
 
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