Lululemon Sales Surge Despite Supply Chain Issues

Lululemon reported stellar performance for the second quarter of 2021 with revenue increasing 61% compared to last year. While many stores were closed in Q2 last year during the pandemic, sales increased 28% on a two-year compound annual growth rate (CAGR). Company-operated store revenue increased 9% and e-commerce revenue increased 66% on a two-year CAGR basis.

Calvin McDonald, CEO of lululemon, shared that the company is on track to exceed revenue targets made for 2023 by the end of this year, a full two years ahead of plan. McDonald said, “We achieved these results based on our performance before, during and emerging from the global COVID-19 pandemic. The company will likely achieve the goal to double its men’s business by the end of this year and remain on track to quadruple the international business by 2023.” The company will update its five-year growth plan next year.

Power of Three

The focus of the company has been on an initiative called Power of Three which includes product innovation, omni guest experience and market expansion. Key elements from these initiatives include Air Support Bras and expanded product assortments in high impact training. The women’s business increased 26% and men’s revenue increased 31% on a two-year CAGR basis. Both company-operated stores and digital revenue have been strong and the company opened 11 new stores, ending Q2 with a total of 534 stores. McDonald stated, “​​We launched exciting new products, experienced strength across channels and geographies, and announced new partnerships that will allow us to become a leader in product sustainability.”

Sustainability partnership

Lululemon announced last month a partnership with leading sustainable materials innovator Genomatic which will bring renewably-sourced, bio-based materials into lululemon’s products. The two companies will work together to create a lower-impact, plant-based nylon to replace conventional nylon which typically requires a great deal of energy to produce, leading to excessive greenhouse gas emissions that contribute to global warming. 

McDonald discussed the goal for lululemon to have 100% of products made from sustainable materials by 2030 as part of its Impact Strategy launched last October. The company is currently participating in the Mylo consortium focused on making materials with renewable ingredients found in nature such as the root of mushrooms. Products with Mylo will be introduced as part of the lululemon product assortment next year.


Strong business but not without supply chain issues

The company discussed some supply chain disruptions including factories in Vietnam being closed due to COVID related issues. Lululemon secures about 30% of its finished goods from Vietnam. The company is pivoting to shipping goods on airplanes to expedite delivery based on the reduction and delay in production but this will add expense to gross margin. While inventory holdings were up 17%, with the trajectory of sales being up 61% the company would expect inventory to be higher to meet consumer demand but the supply chain issues impacted its ability to secure more inventory. McDonald said, “Lululemon’s vertically integrated model operating at higher gross margins levels have allowed the business to navigate and mitigate disruptions in the supply chain.”

The Tycoon Herald