Since the beginning of 2023, lululemon’s stock price has been highly volatile (see the chart below).
Throughout 2023, lululemon’s stock price climbed from $320 per share to $511 per share, marking a 60% increase, making it one of the best-performing sports brands globally. However, entering 2024, especially since March, the stock price has plummeted due to the underwhelming 2023 fiscal year report, the announcement of layoffs, and the departure of Chief Product Officer Sun Choe. The closing price dropped from $479 per share on March 21 to $308 per share on June 5, a 55% decline.
This situation improved on June 5 when lululemon released its Q1 2024 fiscal report, exceeding expectations and boosting investor confidence: the closing price on June 6 rose by 4.8% from the previous day to $323 per share. However, it slightly retreated on June 7 (Friday), closing at $318 per share.
During the post-earnings conference call, lululemon CEO Calvin McDonald, CFO Meghan Frank, and VP of Investor Relations Howard Tubin attended and analyzed the key factors behind the previously unmet expectations—primarily the weak US market. They also discussed the best-performing market globally—the Chinese Mainland, admitting that “the outperformance in the first quarter relied on the Chinese Mainland.” Additionally, they mentioned the new product team structure following Sun Choe’s departure.
- The Chinese market performed the best, with international markets expected to contribute 50% of lululemon’s revenue in the future.
- The US market missed opportunities but still has several growth points.
- New product team structure at lululemon unveiled after Sun Choe‘s departure.
1. The Chinese Market Performed Best, with International Markets Expected to Contribute 50% of lululemon’s Revenue in the Future
First, we present lululemon’s exceptional performance in the Chinese Mainland through several sets of data:
- Leading global growth: In Q1 2024, revenue in the Chinese Mainland increased by 45% year-on-year to $304 million, leading major global markets (US: +2%, Canada: +11%, Rest of the World: +27%). For the full year 2023, revenue in the Chinese Mainland increased by 67% year-on-year to $964 million (Americas: +12%, Rest of the World: +43%). *Since the 2023 fiscal year, lululemon began listing the Chinese Mainland separately in financial reports; previously, it referred to the overall Chinese market, making direct comparisons impossible.
- Increasing share: In the 2022 fiscal year, the Chinese Mainland contributed $577 million in revenue, accounting for 7.1% of the group’s revenue. In Q1 2024, it contributed 13.8% of the group’s revenue.
Additionally, the share of the international market, led by the Chinese Mainland, has been increasing: contributing 15.9% of the group’s revenue in the 2022 fiscal year, 20.6% in 2023, and 26.6% in Q1 2024.
Meghan Frank stated, “We are very pleased with the performance of the Chinese Mainland market. I would say the slightly above-expected performance in the first quarter came from the international market, especially the Chinese Mainland.”
“We are still in the early stages of development in the Chinese Mainland, with significant growth potential in store expansion, digital business, and brand awareness,” said Calvin McDonald. “During my visit to the Chinese Mainland market last week, I witnessed firsthand the strong resonance our brand is creating among local consumers, and this is also happening in other global markets, which is very exciting.”
Meghan Frank revealed that lululemon plans to open 35-40 self-operated stores in the 2024 fiscal year, with 5-10 in the Americas and the rest in international markets, primarily the Chinese Mainland.
“In terms of brand awareness, except for the domestic market in Canada, our independent brand awareness in every country/region we operate in is still very low,” Calvin McDonald admitted. “Our international business is still underpenetrated and continues to represent a significant growth opportunity. In the 2023 fiscal year, international business accounted for only 21% of our operations. In the long run, I see no reason why our brand’s international penetration rate can’t reach 50%.”
Calvin McDonald concluded, “I would say I am energized by the opportunities ahead and excited about lululemon’s future.”
In April this year, lululemon launched the “Step into My Pace” theme event with China’s first F1 driver and brand ambassador Zhou Guanyu, and created a special exhibition for his home debut.
2. US Market: Missed Opportunities, Still Multiple Growth Points
In Q1 2024, the US market grew by 2% year-on-year. Meghan Frank stated, “The US had a slow start, in line with our expectations.”
Regarding the continued weakness in the US market, Calvin McDonald admitted that it was due to “missed opportunities.”
“In women’s wear, we did not maximize our business in the US by offering too few color and size options for consumers, particularly in core product lines like leggings, where our smaller sizes have been out of stock.”
“The same goes for bags. We saw strong consumer response to our new bag styles (such as the two-tone canvas tote) but did not provide more styles in time to meet this demand.”
Therefore, Calvin McDonald believes that simply providing more choices for consumers will help. “Where we have rich color choices, consumer feedback is excellent. We will narrow the inventory gaps in color and size, and this change will be reflected in the second half of the fiscal year.”
During the conference call, management discussed several future growth points for the US market: new stores, men’s wear, and brand awareness.
Meghan Frank stated, “In the US market, we observed that new stores have a very high annual sales per square foot, above the average level ($1,600 per square foot). We usually think new stores take two to four years to reach their full mature sales.”
Regarding brand awareness, Calvin McDonald said, “In the US, our brand awareness is only slightly over 30%, which is another reason for our optimism. Looking ahead, our growth opportunities in the US remain impressive.”
Additionally, Calvin McDonald mentioned that in terms of market share, we did increase our market share in the US apparel and activewear segments in the first fiscal quarter, especially with significant growth in the men’s wear market, outperforming the overall market.
“With strong consumer response to our performance wear, casual wear, and ABC men’s pants series, our men’s business has maintained growth momentum. In the US, lululemon’s men’s brand awareness is less than 20%, indicating a substantial opportunity to continue growing this business.”
In fact, lululemon’s men’s wear has performed strongly in global markets this fiscal quarter. Calvin McDonald said, “Interestingly, it took us many years to penetrate the North American men’s wear business, but we found the penetration rate in international markets to be much faster. So, lululemon became a dual-gender brand in these markets early on, with men strongly responding to the novelty of global products and innovations.”
“In terms of brand health, growth strength, and potential, nothing has changed, not just in all international markets, but also in the US,” Calvin McDonald concluded.
3. New Product Team Structure Unveiled After Sun Choe’s Departure
After the market closed on May 21, lululemon announced a significant personnel change: Chief Product Officer Sun Choe would leave later that month to seek other opportunities (she was subsequently appointed as Global President of the VANS brand by VF Corporation). Following the announcement, lululemon’s stock price fell by 7.8% on May 22, losing nearly $3 billion in market value and sparking heated discussions in the capital markets.
Calvin McDonald responded in the conference call, “As you know, Sun Choe recently decided to leave lululemon to pursue work elsewhere in the industry. I frequently talked with Sun Choe, so I understand her personal and professional goals.”
Calvin McDonald also announced the latest product team structure:
- The product team will be led by Global Creative Director Jonathan Cheung, who will report directly to Calvin McDonald.
- Chief Marketing Officer Liz Binder will report directly to Nikki Neuburger, who has been appointed as Chief Brand & Product Activation Officer.
Calvin McDonald stated, “We regularly update succession plans, allowing us to transition seamlessly into new leadership structures. I am excited that the new structure will bring fresh perspectives, curiosity, and leadership to our product team.”
“Under Nikki Neuburger’s experienced leadership, the team will be more comprehensively integrated, simplifying decision-making and ensuring we provide innovative and consistent service to consumers in all markets. All these changes are aimed at accelerating the product storytelling process and further increasing the speed to market for our new products. These transitions will help maintain and strengthen our innovation pipeline.”
| Sources: Lululemon Conference Call
| Image Credit: Lululemon Official Website
| Editor: LeZhi
