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Have Same-Store Sales for Lululemon Athletica Turned a Corner?

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Same-store sales trends for Lululemon Athletica

Lululemon Athletica (LULU) is slated to declare its 1Q16 results on June 9. LULU projects its same-store sales to come in at a low single-digit pace in the quarter. Its total same-store sales growth includes comparable sales from its corporate-owned stores open at least a year, as well as e-commerce sales growth.

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Same-store sales trends in fiscal 2015

Lululemon reported a 6% increase in total same-store sales in 4Q15. Same-store sales for its brick-and-mortar stores grew 2% in the quarter. For the full year, total comparable sales rose 1%, compared with a 7% increase in the previous year. However, same-store sales for brick-and-mortar stores were down 3% in fiscal 2015, compared with a 2% increase the previous year.

The lower comps came about as the units per average transaction were also lower, in addition to a decline in the conversion of store traffic rates. The appreciation of the US dollar versus the Canadian and Australian dollars also impacted same-store sales metrics. Total store comps[2. Including DTC operations] came in at 3% in constant currency terms in fiscal 2015, compared with 9% in fiscal 2014. Adverse currency movements impacted revenue by ~$35.6 million in fiscal 2015.

Same-store sales reversals

However, Lululemon’s same-store sales saw a turnaround in 2H15. In 3Q15 and 4Q15, same-store sales grew by 1% and 6%, respectively. These were important milestones in the company’s turnaround efforts. Total same-store sales[1. Including DTC operations] had declined in the first two quarters of the year. The declines came as the company struggled to reestablish the Lululemon brand, after a very large and public recall of its luon pants.

Peer group comparisons

In comparison, same-store sales at its competitor L Brands (LB) grew 4%, while bebe stores (BEBE) reported a decline of 3.2% in store comps in their last few fiscal years. Both L Brands and bebe have activewear brands. LB has a multi-brand portfolio, including its PINK and VSX collections, that competes with Lululemon. Plus, bebe’s Sport line also competes with LULU.

L Brands reported strong same-store sales in the last three months, and its comps growth came in better than the expected 5% in the 17 weeks ended May 30, 2015. LB is a specialty retailer, constituting ~0.9% each of the portfolio holdings of the Consumer Discretionary Select Sector SPDR Fund (XLY) and the SPDR S&P Retail ETF (XRT).

LULU revamped several strategies in an effort to reverse its declining sales, which we will explore next.

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