The athletic apparel sector has been under plenty of stress in 2017, with sporting goods players taking a 3% sales hit in Q3. But the strong lululemon brand is keeping the retailer afloat, despite the many issues plaguing athleticwear.
Lululemon reported a 14% increase in sales to $619 million in Q3, with same-store sales increasing 8%. Brick-and-mortar same-store sales jumped 2%, while direct-to-consumer sales leapt 26%. The company reported net income of $59 million and earnings per share of $0.43 for the quarter, down from $68 million due the expense of restructuring its ivivva kids operations.
Lululemon appears to have three factors going for it that its competitors in the athleticwear space haven’t quite figured out: brand community, limited markdowns and restrained marketing spend.
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The retailer built a loyal consumer base by offering free yoga classes and running clubs. This has helped create a customer base that is willing to pay top dollar for lululemon product offerings. In fact, 43% of customers said they’d still buy clothes at lululemon if prices rose 5% to 10%, according to a recent MKM Partners survey of lululemon customers.
In contrast, retailers such as Dick’s Sporting Goods, Under Armour and Foot Locker use heavy promotions to make sales, especially in cases where Walmart and Amazon already have them beat on price.
The company relies largely on local “brand ambassadors” such as yoga teachers, personal trainers and spin instructors to spread word of mouth about merchandise. The major sporting goods companies often rely on high-profile professional athletes to market and advertise the brand and products, significantly raising these companies’ marketing budgets.
After generating its most traffic ever on Black Friday and its largest sales ever on Cyber Monday, lululemon actually raised its fiscal year profit and revenue forecasts, so the company remains confident going forward. It now expects adjusted earnings of $2.45 to $2.48 a share, up from a prior forecast of $2.35 to $2.42 a share.
