Lululemon stretches digital marketing wings, sees success

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A scene from Lululemon's recent campaign.
A scene from Lululemon's recent campaign. Credit: Lululemon

Despite the sudden exit of its CEO last month, Lululemon Athletica is seeing sales success thanks to a focus on digital improvements and brand marketing. The Canadian yogawear marketer reported an 18 percent increase in fourth-quarter net revenue to $928.8 million, along with a 12 percent increase in comparable sales.

Net income in the fourth quarter was $120 million, down 11 percent from the year-earlier period.

But after relaunching its website at the end of the third quarter, just before the start of the holiday shopping season last year, Lululemon saw a 42 percent lift in e-commerce revenue compared to the fourth quarter of 2016. The chain also doubled its email subscribers in 2017, executives said.

"We're getting smarter in how we're being able to engage our guests via email and other social media," said Stuart Haselden, chief operating officer and chief financial officer, on a conference call Tuesday evening.

The sales uptick comes on the heels of the February departure of Laurent Potdevin, who was CEO for four years and left for a failure to meet "standards of conduct," according to the company. Celeste Burgoyne, a 12-year Lululemon veteran and executive VP for the Americas, was assigned to oversee brand marketing when Potdevin departed.

Oliver Chen, a retail analyst at Cowen & Co., said in a research note that Lululemon's new site included better content, storytelling and product imagery. "We agree that the majority of the momentum generated by Lulu during 4Q and extending into 1Q is being driven by exceptional product innovation, a solid omnichannel strategy with an improved website, and investments in marketing," wrote Chen.

Yet analysts are still concerned about the open CEO role. Glenn Murphy, executive chairman, said Tuesday that the brand has met with candidates to fill it.

"While there are a number of initiatives in place to drive sustained growth, we view the risk/reward as balanced, particularly without a CEO in place," wrote Canaccord Genuity consumer analyst Camilo Lyon in a recent research report. "While Lulu appears to be hitting on all cylinders, we can't ignore the fact that at least once per year since 2014, it has hit a speed bump that has derailed its momentum and caused it to lower guidance."

Indeed, beginning with the sheer-pants debacle of 2013, Lululemon has had a history of challenges including lackluster product, excess inventory and increased competition. Lululemon increased selling, general and administrative expenses by $42.2 million last year, primarily driven by the digital marketing push, according to financial documents, and debuted its first global campaign in 2017 with "This is Yoga."

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CORRECTION: An earlier version of this article misidentified the Lululemon CEO who left in February as Laurence Potdevin. His first name is Laurent.

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