Lululemon Athletica Stock

lululemon athletica inc. operates principally as a designer, distributor, and retailer of technical athletic apparel, footwear, and accessories.

Products

The company offers a comprehensive line of performance apparel, footwear, and accessories marketed under the lululemon brand. The company’s apparel assortment includes items, such as pants, shorts, tops, and jackets designed for a healthy lifestyle, including athletic activities, such as yoga, running, training, and most other activities. The company also offers apparel designed for being on the move and fitness-inspired accessories. The company expects to continue to broaden its merchandise offerings through expansion across these product areas.

The company’s design and development team continues to source technically advanced fabrics, with new feel and fit, and craft innovative functional features for the company’s products. Through the company’s vertical retail strategy and direct connection with the company’s customers, whom the company refers to as guests, the company is able to collect feedback and incorporate unique performance and fashion needs into the company’s design process.

To help build the company’s community of guests, and as part of the company’s membership program, the company offers in-home connected fitness and associated content subscriptions through lululemon Studio.

Market

Although the company’s largest customer group is made up of guests who shop the company’s women's range, representing 65% of the company’s 2022 net revenue, the company also designs a comprehensive men's line and has a targeted strategy in place.

North America is the company’s largest market by geographical split, representing 84% of the company’s 2022 net revenue. The company is expanding internationally across the People's Republic of China (‘PRC’), the rest of the Asia Pacific, and Europe. The company is expanding in these regions via a decentralized model, allowing for local community insight and consumer preference to inform the company’s strategic expansion.

Segments

The company primarily conducts its business through two channels: company-operated stores and direct to consumer.

The company also operates outlets, serves certain wholesale accounts, has license and supply arrangements, sells repurchased product through the company’s ‘Like New’ recommerce program, has temporary locations, and sells connected hardware and associated subscriptions through lululemon Studio. The financial results of these operations are disclosed in Other.

Company-Operated Stores

The company operates stores in 18 countries across the globe. In addition to being a venue to sell the company’s products, the company’s stores give the company a direct connection to its guest, which the company views as a valuable tool in helping the company build its brand and product line. The company’s retail stores are located primarily on street locations, in lifestyle centers, and in malls.

As of January 29, 2023, there were 26 licensed locations, including 12 in Mexico, seven in the United Arab Emirates, three in Qatar, three in Saudi Arabia, and one in Kuwait. The company performs ongoing evaluations of its portfolio of company-operated store locations.

In 2023, the company’s new store growth will come primarily from company-operated store openings in the United States and the PRC.

The company uses sales per square foot to assess the performance of the company’s company-operated stores relative to their square footage. The square footage of the company’s company-operated stores includes all retail related space, storage areas, and administrative space used by the store employees. It excludes any space used for non-retail related activities.

Direct to Consumer

The company’s direct to consumer channel also allows the company to reach and serve guests in markets beyond where the company’s physical retail locations are based. This channel is effective in building brand awareness, especially in new markets.

The company serves its guests via its e-commerce website www.lululemon.com, other country and region-specific websites, and mobile apps, including mobile apps on in-store devices that allow demand to be fulfilled via the company’s distribution centers or other retail locations.

The company continues to evolve and integrate its digital and physical channels in order to enrich its interactions with the company’s guests, and to provide an enhanced omni-channel experience.

Other

The company’s other operations primarily include:

Outlets - The company utilizes outlets to sell slow moving inventory and inventory from prior seasons at discounted prices. The company operates outlets, with the majority in North America.

Wholesale - The company sells to premium wholesale locations that offer an alternative distribution channel that is convenient for the company’s core guest and enhances the image of the company’s brand, including yoga and fitness studios, university campus retailers, and other select partners. The company does not intend wholesale to be a significant contributor to overall sales. Instead, the company uses the channel to build brand awareness, including outside of North America.

License and Supply Arrangements - The company enters into license and supply arrangements from time to time when the company will be to its advantage to partner with companies and individuals with significant experience and proven success in certain target markets.

The company has license and supply arrangements with partners in the Middle East and Mexico, which grant them the right to operate lululemon branded retail locations in the United Arab Emirates, Kuwait, Qatar, Oman, Bahrain, Saudi Arabia and Mexico. Under these arrangements the company supplies the partners with lululemon products, training and other support. An extension to the initial term of the agreement for the Middle East was signed in 2020 and it extends the arrangement to December 2024. The initial term of the agreement for Mexico expires in November 2026. As of January 29, 2023, there was also an e-commerce website operated through the license and supply arrangements.

Recommerce - The company’s recommerce is the sale of repurchased product via the company’s ‘Like New’ program. This program allows guests to exchange their gently used lululemon products for credit, and then those products are verified and quality checked before being resold online at likenew.lululemon.com.

Temporary Locations - The company’s temporary locations, including pop ups, are typically opened for a short period of time. These retail locations enable the company to serve guests during peak shopping periods in markets where the company does not ordinarily have a physical location, or enable the company to better serve its guest in markets where the company sees high demand at its existing locations.

lululemon Studio - The company offers in-home fitness through an interactive workout platform that allows the company’s guests to subscribe for live and on-demand classes.

Integrated Marketing

The company has a multi-faceted strategy to build brand awareness, affinity and guest loyalty. This strategy leverages owned and paid channels, the company’s ambassador network, brand partners, events, and content – to drive awareness, consideration, engagement, conversion, and ultimately loyalty and engagement at the global, regional, and local levels.

Product Design and Development

The company partners with independent inspection, verification, and testing companies, who conduct a variety of tests on the company’s fabrics, testing performance characteristics, including pilling, shrinkage, abrasion resistance, and colorfastness. The company develops proprietary fabrics and collaborate with leading fabric and trims suppliers to manufacture fabrics and trims that the company generally seeks to protect through agreements, trademarks, and as trade-secrets.

Distribution Facilities

The company operates and distributes finished products from its distribution facilities in the United States, Canada, and Australia. The company owns its distribution center in Columbus, Ohio; and leases its other distribution facilities. The company also utilizes third-party logistics providers to warehouse and distribute finished products from their warehouse locations in the United States, the PRC, and the Netherlands. The company regularly evaluates its distribution infrastructure and consolidates or expands the company’s distribution capacity as appropriate for its operations and to meet anticipated needs.

Competition

The company is in direct competition with wholesalers and direct sellers of athletic apparel and footwear, such as Nike, Inc., adidas AG, PUMA, Under Armour, Inc, and Columbia Sportswear Company. The company also competes with retailers who have expanded to include women's athletic apparel, including The Gap, Inc. (including the Athleta brand), Victoria's Secret with its sport and lounge offering, and Urban Outfitters, Inc.

Seasonality

The company’s business is affected by the general seasonal trends common to the retail apparel industry. The company’s annual net revenue is weighted more heavily toward the company’s fourth fiscal quarter (year ended January 2023), reflecting the company’s historical strength in sales during the holiday season, while the company’s operating expenses are more equally distributed throughout the year. As a result, a substantial portion of the company’s operating profits are typically generated in the fourth quarter of the company’s fiscal year. The company generated approximately 24% of the company’s full year operating profit during the fourth quarter of 2022. Excluding the impairment of goodwill and other assets recognized in relation to lululemon Studio, the company generated approximately 44% of the company’s full year operating profit during the fourth quarter of fiscal 2022.

Intellectual Property

The company considers its lululemon and wave design trademarks to be among the company’s most valuable assets. In addition, the company owns many other trademarks for the names of several of the company’s brands, slogans, fabrics and products. The company owns registered and pending U.S. and foreign utility and design patents, industrial designs in Canada, and registered community designs in Europe that protect the company’s product innovations, distinctive apparel, and accessory designs.

History

lululemon athletica inc. was founded in 1998. The company was incorporated in 2005.