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LULU’s Revenue Performance Surprises Markets on the Upside

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Lululemon Athletica’s sales performance in fiscal 1Q17

Lululemon Athletica (LULU) posted revenue of $495.5 million for fiscal 1Q17. Revenue grew by almost 17% over fiscal 1Q16. Excluding the negative effects of forex movements, its revenue rose by 18%.

The yoga and activewear retailer (XRT) (FXD) beat its own revenue guidance range of $483 million–$488 million provided at its last earnings call. The sales upside was provided by store growth, higher same-store sales at existing stores, and above-average growth in e-commerce or direct-to-consumer sales.

Among Lululemon’s high-growth peers in the athletic gear industry, Under Armour (UA), Skechers (SKX), and Columbia Sportswear (COLM) grew their revenues by 30.2%, 27.4%, and 9.6%, respectively, in their last quarters.

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Sales drivers

Lululemon’s comp store base rose by 57, with the total number of stores coming in at 373 at the end of the quarter. Store comp numbers were also healthy, with brick-and-mortar comps growth coming in at 3% in the quarter. This was the second straight quarter of positive numbers at its physical stores.

The categories that performed well included its pants products and men’s gear, with both categories reporting above-average comps growth.[1. Based on comments by Laurent Potdevin, CEO of Lululemon Athletica] Lululemon relaunched its pants wall last year. Since the launch, the pants category has consistently outperformed the company average.

Sales outlook

Lululemon Athletica (LULU) is looking at continual growth in its store footprint in the remainder of fiscal 2017. Square footage growth for the year is projected to be 12%. The company is planning to open ~40 new stores in the year, including 11 in markets outside the US and Canada.[2. Based on comments by Stuart Haselden, CFO of Lululemon Athletica] We’ll discuss specific revenue guidance and growth numbers in greater detail in Part 5 of this series.

However, Lululemon also reported softening store traffic trends compared to the last reported quarter. The impact of slower traffic was partly mitigated by higher spending.

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