E-commerce and total sales grew double digits for fiscal Q4 and the year, but Lululemon says it got off to a rough start in 2017 due to weaker online sales.

Lululemon Athletica Inc. posted double-digit e-commerce sales gains for fiscal 2016 and the fourth quarter ended Jan. 29.

Online sales were $453.3 million for the year, up 12.9% from $401.5 million in fiscal 2015, the company said Wednesday. E-commerce sales accounted for 19.3% of total sales, slightly lower than 19.5% in fiscal 2015. Store sales accounted for 72.7% of sales for the year, down from 73.6% a year ago, and other sales, which are mostly from outlet stores, comprised 8.0% of sales, up from 6.9% in the year-ago period.

For fiscal Q4, online sales were $164.3 million, up 12.3% from $146.3 million in the year-ago quarter, according to Lululemon, No. 96 in the Internet Retailer 2016 Top 500 Guide.

“The increase in net revenue from our direct to consumer segment was primarily the result of increased traffic on our e-commerce websites, increased dollar value per transaction and improved conversion rates,” Lululemon said.

The apparel retailer has the potential to grow online sales to more than $1 billion by 2020, CEO Laurent Potdevin told analysts on Lululemon’s quarterly earnings call Wednesday. “We will continue to build our digital ecosystem this year and beyond. We are laser-focused on realizing the power of our CRM [customer relationship management] platform at scale and continuing the seamless expansion and integration of our omnichannel strategy.”

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The new year and fiscal Q1 2017 got off to a slower start with weak e-commerce sales that Potdevin attributed to a product assortment lacking color and depth.

Lululemon connects its store, community and online data to better target shoppers and grow sales

The Loud and Clear jacket from Lululemon.

More color is on the way to its e-commerce site and physical stores, and “from a visual merchandising standpoint, our Loud and Clear jacket is the perfect example of what happens when we capture both design and function infused with energy and movement into our e-comm images,” Potdevin said.

Chief financial officer Stuart Haselden said the retailer is paying close attention to its online conversions and working to improve site performance. “Our initial reads indicate these efforts are gaining traction,” he said on the call, though he did not give details on the improvements.

Stores expansion will continue in fiscal 2017. “We expect to open up to 50 company-operated stores which includes an acceleration in our international store openings to 15. This represents a square footage increase of approximately 12% for the year,” Haselden said, according to a Seeking Alpha transcript. Lululemon had 406 stores at the end of fiscal Q4. China will be the focus of its international expansion this year, with stores in Shanghai, Beijing, Guangzhou and Chengdu, and “digital amplification to reach our guests across the entire region,” he said.

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The broader concern is that customers were so quick to abandon the Lululemon brand, said Camilo Lyon, an analyst at Canaccord Genuity Inc. who recommends selling the stock. “We see a larger issue brewing,” Lyon said in a report Thursday. “Pricing, competition and/or fashion alternatives were a strong enough force to drive the consumer away, and thus will make it that much more difficult to recapture her.”

Paul Lejuez, an analyst for Citigroup Inc., was one of several analysts that downgraded the stock after the forecast for fiscal 2017 was released. Lululemon said revenue is expected to be $2.55 billion to $2.60 billion this year, and analysts had estimated $2.62 billion. Lejuez lowered his rating to neutral from a buy recommendation on Thursday. Lululemon still “has significant room to grow the brand,” he said in a report. “However, the path to long-term growth is not as visible against the backdrop of the current weakness.”

Lululemon’s woes extend a punishing year for athletic brands. Nike Inc. (No. 47) last week missed estimates, hurt by pressure from Adidas AG (No. 66) and Under Armour Inc. (No. 100). Dick’s Sporting Goods Inc. (No. 62), meanwhile, saw its stock tumble as well after giving a weak outlook earlier this month.

For the fiscal fourth quarter ended Jan. 29, Lululemon also reported:

  • Online sales of $164.3 million, up 12.3% from $146.3 million in the year-ago quarter.
  • Net revenue of $789.9 million, up 12.2% from $704.3 million.
  • Net income of $136.1 million, up 15.9% from $117.4 million.
  • A total comparable sales gain, including e-commerce, of 8.0%, or 7.0% when accounting for currency fluctuations.

For fiscal 2016, Lululemon reported:

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  • Online sales of $453.3 million, up 12.9% from $401.5 million in fiscal 2015.
  • Company-operated store sales of $1.70 billion, up 11.8% from $1.52 billion.
  • Other sales, primarily from outlet stores, of $186.7 million, up 30.8% from $142.7 million.
  • Net revenue of $2.34 billion, up 13.6% from $2.06 billion.
  • Net income of $303.4 million, up 14.1% from $266.0 million.
  • A total comparable sales gain, including e-commerce, of 6.0%, or 7.0% when accounting for currency fluctuations.

Bloomberg contributed.

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