Lululemon reported strong results for the first quarter, bucking a trend of weakness and earnings misses across retail this quarter.
The athleisure brand, which typically caters to higher income consumers, has consistently managed to weather macro-economic headwinds plaguing the retail industry at large. Markdowns in Q1 were in line with last year and the company expects markdowns for the full year to remain in line with 2022 and 2019 levels, despite recent efforts to clear through excess inventory.
Lululemon managed to maintain a full-price selling model as other retailers implement large-scale promotions. According to some analysts, that’s because of its brand authority. That is, people know Lululemon products are more expensive than other brands. But they still want to shell out the cash for their premium products.
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“Lululemon really understands their customer and has a close relationship with their best consumers,” said Matt Powell, an advisor at Spurwink River consultancy, noting that Lululemon is now the largest women’s active brand in the U.S. “Lululemon uses its network of stores to build and nurture those relationships. The product is fresh every time she visits. Lots of innovation coming from the brand.”
Price point is a key element in the creation of Lululemon’s brand identity. So when it comes to implementing promotions, the brand takes a surgical approach.
“We enter markets with our similar premium positioning of the brand with the intent to sell at full price, with markdowns being used only as a means to exit through seasonal shifts in product and not leverage promotional discounting in order to fuel and create demand,” said Lululemon CEO Calvin McDonald in a call with analysts on Thursday.
According to Morgan Stanley analysts led by Alex Straton, Lululemon’s “unique pricing power” is a result of its strong core assortment, price integrity and premium margins.
“Lululemon’s fundamentals are impressive on a standalone basis and especially relative to peers,” Straton wrote. “[These] results further embolden our view that Lululemon can likely weather the macro headwinds more effectively than peers (as was the case in 1Q).”
Given the positive results this quarter, analysts have largely remained bullish on Lululemon’ growth trajectory through the remainder of the year, as it introduces new products and expands to new markets.
“Lululemon continues to exhibit strong momentum, driven by product innovation, investments in growth and demand creation and the benefit of not being exposed to the wholesale channel,” wrote Wedbush analyst Tom Nikic in a note investors. “We see a path to even more beats-and-raises as the year
progresses.”
