One Positive Trend at Lululemon: Online Sales

The company’s Web sales are growing fast. Why that’s a good sign.

| More on:
The Motley Fool

By Christine Conway

When Lululemon (TSX:LLL, Nasdaq: LULU) reported its second-quarter performance, the growth of one segment of its business stood out to me. Direct-to-consumer revenue increased 39% as compared to the second quarter of 2012. In fact, the increase in e-commerce is a trend that has been going strong for a number of years.

Quarter Direct-to-Consumer Revenue Percentage of Total Revenue Increase Over Previous Year’s Q2
Q2 2013 $49.4 million 14.3% 39%
Q2 2012 $35.4 million 12.5% 91%
Q2 2011 $18.6 million 8.8% 93%

While the irony of sitting at home on your couch purchasing yoga/athletics apparel is not lost, Lululemon’s online business is flourishing. So much so that it’s needed to build a new facility. In the second quarter, pen was put to paper to build a new distribution centre.

The new centre
The distribution centre, Lululemon’s second in the U.S., will be located in Columbus, Ohio. The location was chosen to provide two-day delivery service for online purchases. The facility will be well-stocked to supply new product and replenish to the company’s stores in North America, which means less delay getting stock on the floor.

Of course, the real estate, inventory, and new systems (purchase order management and new warehouse management system) required an upfront investment. Management has forecasted estimated total capital expenditures to be between $100-$110 million for fiscal 2013 — a company-wide figure that includes not just the centre but new stores, renovations to existing stores, IT projects, and more. But by exiting Q2 with $610.3 million in cash and cash equivalents, Lululemon’s pocketbook is more than able to handle its expansion plans.

An online community
Lululemon is trying to strengthen its online presence through its new online community called “Hey Lululemon.” It was launched this quarter.

The site is designed like an online forum, where anyone can sign up and post comments and questions to Lululemon designers, developers, and other staff. The site is organized by category so that feedback can be given on men’s and women’s products as well as accessories and anything else that comes to mind.

Lululemon is using it as a tool to foster a greater level of trust and loyalty among its customers by making its team available and providing a safe place for feedback, both good and bad. It’s a smart strategy — customers will be more likely to voice their concerns and remain loyal if someone is listening and resolves their issues when they are dissatisfied. Users will also get exclusive behind-the scenes updates.

Final thoughts
As we’ve seen, the e-commerce portion of Lululemon’s business has gained steam over the last few years. From the new distribution centre to the online community, Lululemon’s focus on expanding its e-commerce division should create better-satisfied customers and put emphasis on a segment of its business that has lower overhead costs, and as a result, higher profit margins.

Motley Fool Canada’s top 2 stock ideas
Our senior investment analyst will unveil his top two stock ideas for new money now on Oct. 1. And YOU can be one of the select few investors to find out first — just click here to reserve your invitation.

Christine Conway does not hold shares in any of the above mentioned companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Business man on stock market financial trade indicator background.
Investing

Is Cargojet Stock a Buy at Today’s Price?

Given its long-term growth potential and discounted stock price, I am bullish on Cargojet.

Read more »

Silver coins fall into a piggy bank.
Stocks for Beginners

Why Dollarama Stock Keeps Going Up

Dollarama stock (TSX:DOL) continues to climb, with shares up 35% in 2024 alone. But does that mean the best has…

Read more »

oil and gas pipeline
Energy Stocks

Pipeline to Prosperity: Invest in Enbridge and Pembina Stock

Here's why pipeline companies such as Enbridge and Pembina should be on the shopping list of income investors in July…

Read more »

grow dividends
Investing

These 2 Stocks Have Risen a Blistering 20% So Far This Year, and They’re Not Done Yet

Agnico Eagle Mines (TSX:AEM) and another hot stock still look cheap enough to buy on strength.

Read more »

Various Canadian dollars in gray pants pocket
Stocks for Beginners

4 Stocks Under $50 New Investors Can Buy Confidently

These four stocks are some of the best options for new investors, with share prices under $50 that anyone can…

Read more »

Oil industry worker works in oilfield
Energy Stocks

If You Invested $1,000 in Headwater Exploration Stock 5 Years Ago, This Is How Much You’d Have Now

Here's why Headwater Exploration (TSX:HWX) stock has been an active investor's dream come true over the past half decade

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Retirement

TFSA: 2 Canadian Dividend Stocks to Buy for a Self-Directed Retirement Portfolio

Top TSX dividend stocks look oversold and offer attractive yields.

Read more »

A colourful firework display
Dividend Stocks

2 Potentially Explosive Stocks to Buy in July

Just because a company is a blue-chip TSX stock, doesn't mean the growth is all but over. In fact, these…

Read more »