Last month’s Peloton sell-off seemed to signal changes in consumer behavior when it comes to home workouts. Athletic wear giant Lululemon (NASDAQ: LULU)’s earnings call on Wednesday has suggested Peloton is not the only company struggling with the shift in habits.
Lululemon announced that sales rose 27% from a year earlier, while profit for the same period increased 32% to $829.4 million. Net revenue increased by $534.3 million, or 58% from the same period in 2019. Lululemon raised their net revenue projections from $6.19 for 2021 to be in the range of $6.25 billion. However company shares declined 2.1% on the day after expectations for Mirror, the at-home fitness device acquired in July 2020, were lowered by half.
“I think although they did get disrupted during COVID they bounced back incredibly quickly,” Neil Saunders managing director of GlobalData’s Retail Department said in a phone interview ahead of the earnings call. “And now they’re not only well above where they were in 2020, but they’re also well above where they were in 2019. So Lululemon actually has emerged as a much stronger business.”
The Vancouver-based company reported $1.45 billion in net revenue for the quarter that ended in October, a 30% rise from the same period a year earlier. Last year the company relied on e-commerce, but this year’s high vaccination rates and return to work have brought much-needed foot traffic to the stores.
Lululemon’s revenue jumped while its business in the home gym market has shown less than expected growth. The company acquired Mirror last July for $500 million in an attempt to compete with Peloton. Mirror, a part mirror-part computer interactive fitness device that streams on-demand exercise classes, generated $170 million in revenue last year. Mirror’s most basic model costs $1,495 ($995 via holiday cyber sale), and the most expensive model is $2,045, with monthly subscriptions to participate in classes running $39 a month.
Last March, after the acquisition of Mirror, CEO of Lululemon Calvin McDonald said he did not expect demand for home fitness gyms to go down once mass vaccinations started. “Guests were seeking more convenient at-home options before COVID-19, and they will continue to seek these options post the pandemic,” he said during last year’s fourth-quarter earnings call. The company since then leveraged the Lululemon ecosystem to raise awareness for Mirror by offering the product in more than 200 stores around the U.S, and since October in 40 stores in Canada. The company expected strong growth for the home fitness product with revenue expected to increase to $250 million to $275 million in 2021.
On Wednesday, the CEO lowered these predictions by half. “As you know 2021 has been a challenging year for digital fitness, said McDonald in the earnings call. “We have seen increasing pressures that are impacting the entire industry.” The company has shown commitment to continue investing in Mirror’ growth. “One of the unique advantages we bring to the space is the many ways we can build brand awareness for mirror. As we unlock these synergies, we see a clear path to engage with the more than 10 million Lululemon guests who live the sweat life,” McDonald said. Mirror accounts for less than 3% of Lululemon’s 2021 revenue.
Since COVID-19 and its impact on brick-and-mortar stores in 2020, Lululemon reshaped its business to focus on online sales and e-commerce. In 2021, the company’s online sales surged 21% on top of 93% increase last year.
The activewear sector overall in 2021 has been strong, with sales up for the year more than 20% from 2020.
Matt Powell, sportswear analyst from NPD group, thinks the greater shift toward athletic, comfortable clothing is playing a huge role in sales. “Even if they go back to work in offices,” Powell said, “I don’t think we’re going to see people going back to dressing up again.” He added that the future of fitness will be a blend of in-person and virtual workouts.
Wednesday’s report shows a strong sales and earnings growth during early holiday shopping in late October. TK said during the earnings call that they expect a stronger Q4 due to strong holiday season sales.
Women’s apparel continues to be the strongest performing category for Lululemon. It grew nearly 20% last year, while the men’s category expanded 17% in 2020. According to Researchandmarkets.com, the global athleisure market, estimated to be $144.25 billion in 2021, is expected to reach $281.4 billion by 2026, growing at a CAGR of 14.3%.
Powell said the pandemic has renewed consumer commitments to healthy living. “And every survey we do indicates that people are planning to do more fitness activities and to try to stay fit.”
