Lululemon highlighted a now-familiar growth story in its second quarter, with McDonald saying the retailer is still in the "early innings of our growth story." The retailer raised guidance and now expects revenue to be between $6.19 billion and $6.26 billion for the year, up from a previous expectation of somewhere in the high-$5 billion range.
The company's revenue has grown at a compound annual growth rate of 28% on a two-year basis, and its open stores are back to the same productivity they had in 2019 with traffic up by about 150%.
"This is strong evidence that [Lululemon] was not just a pandemic play, which should rattle the bears," MKM Partners Managing Director Roxanne Meyer said in emailed comments. "And yet, sales were said to be held back by supply chain issues/delayed inventory."
In fact, the biggest question marks analysts had for Lululemon surrounded the company's Mirror acquisition. The retailer has included shop-in-shops for the at-home fitness platform in 150 of its stores, with plans to expand that to 200 by the holidays, and Lululemon will soon introduce Mirror to the Canadian market as well. The company has opened a second production studio, which doubles the number of classes the platform can offer, but McDonald also cited that Lululemon was carefully watching rising customer acquisition costs for Mirror.
"We are playing the long game," McDonald said of Mirror's growth plan.
Analysts are less convinced, mostly because Lululemon has shied away from offering specific metrics around Mirror.
"While the 2020 Mirror acquisition was initially received positively by the market, it appears sentiment has cooled over time as management has intentionally limited disclosure around the business' performance," Morgan Stanley analysts led by Kimberly Greenberger said in emailed comments. Greenberger noted that Lululemon confirmed Mirror was not profitable but did not share a path to profitability. "In our view, given limited disclosure, the Mirror acquisition has seemingly introduced noise into an otherwise clean equity story."
Lululemon, however, is betting big on the company in the long run. The athletics retailer put an end to its paid membership test, which McDonald said was hard to scale because it was rooted in physical interactions, and instead sees the chance to use Mirror as the platform for a membership program. McDonald said the learnings from its membership program test were "integral" to the company's decision to acquire Mirror in the first place.