Digital forms key part of Lululemon’s (LULU) strategy for holiday season and beyond

Shares of Lululemon Athletica Inc. (NASDAQ: LULU) were up 5% during midday trade on Thursday. The stock has gained 64% since the beginning of this year and 25% over the past three months. The company reported strong results for its most recent quarter fueled largely by its digital channel. It also gained share in the active apparel market helped by its efforts in revamping its product offerings.

Through its investments in its digital capabilities as well as its product offerings, Lululemon appears well-positioned to take advantage of the market opportunities and drive growth through the holiday season and into the coming year.

Digital strength

Lululemon’s investments in its digital capabilities over the past few years paid off this year as the COVID-19 pandemic drove a rapid shift towards ecommerce. During the third quarter of 2020, 43% of total revenue came from the digital channel while digital comps increased 93%. The company saw particular strength during the Thanksgiving and Black Friday weekend as ecommerce helped offset declines from lower store traffic.

The digital channel is a key part of the company’s strategy for the upcoming holiday period. Even though a majority of the stores are open, customers continue to shift between channels and this has driven strong growth in ecommerce. Lululemon has pulled forward investments in its digital channel to improve customer experience and maximize holiday business. The company continues to work on its fulfilment options to drive digital sales.

Store fleet

Despite the rapid growth of ecommerce, Lululemon’s store fleet remains key to its growth strategy. Currently, 97% of its stores are open but the company continues to face capacity constraints due to the pandemic.

In addition to its digital capabilities, Lululemon is adopting various measures to provide customers with a smooth shopping experience. These include the buy online-pickup-in-store facility and appointment shopping, whereby people can schedule their shopping time before, during or after normal operating hours.

Lululemon remains on track to open 30-35 net new stores globally in 2020. Another part of its store strategy involves seasonal stores for the holiday. The company had 70 stores operating during the third quarter and it plans to increase this number to around 100 in the fourth quarter.

Outlook

For the fourth quarter of 2020, Lululemon expects total sales to increase in the mid to high teens. This outlook assumes strong ecommerce growth which is likely to moderate from Q3 levels. It is also based on the assumption that the majority of stores will remain open throughout the fourth quarter. Adjusted EPS is now expected to increase in the mid-single digit range.  

Click here to read the full transcript of Lululemon Athletica Q3 2020 earnings conference call