Even as rival retailers scaled back on plans to expand merchandise lines in the deepening down, Christine Day decided to go on in the opposite direction.
About one year ago, as the financial crisis exploded, she gives permission to her staff at high-end yoga wear retailer Lululemon Athletica Inc. to encourage its running apparel offerings and take on Nike Inc., including its top selling women’s running shorts.
The chief executive officer of Lululemon also went advanced with plans to expand its seasonal outerwear, adding fall jackets to the racks. She invested in new systems to track inventory better and ensure that the stores didn’t run out of the popular fashion.
Her bet on new merchandise – and better inventory tracking – has paid off. Late yesterday, Lululemon said it was raising its third-quarter profit target because of stronger-than-anticipated sales. It now projects that its earnings will range from 17 cents a share to 19 cents a share, from previous guidance of 11 cents to 13 cents.
It said it hopeed third-quarter sales to be as high as $112-million, from up to $100-million previously. That’s an increase from $87-million in the same period a year ago.
“ Unlike most consumer discretionary companies, which are struggling with lack of demand, Lululemon is in the rare enviable position of having demand exceed supply. ”— Odlum Brown analyst Barbara Gray
The bullish forecast bodes well for retailers as they approach their crucial holiday season after a year when upscale merchants were hit hard by the tight economy, observers said.
“It’s a very good sign,” said Milton Pedraza, chief executive officer of the Luxury Institute in New York. “But we’re all pretty cautious. There’s not that much strength out there.”
Ms. Day added in an interview: “It gives us a little more confidence and optimism” for the holiday shopping period.
Once a stock market darling and hot destination for athletic wear, Lululemon grew swiftly in the United States after going public in the summer of 2007. But by last fall, the recession had caught up to it and its profit and sales results were disappointing.
Now the retailer is feeling differently and has increased its inventory levels for the critical fourth quarter after having reduced them earlier in the year during the recession, Ms. Day said. In another departure, Lululemon now has the flexibility to scale back on those merchandise levels if sales don’t succeed, she said. It has ordered extra fabric, and has made up its top-selling size six yoga pants in as little as two weeks to meet strong demand, she said.
Analysts are impressed with the company’s improved systems and new lines.
“Unlike most consumer discretionary companies, which are struggling with lack of demand, Lululemon is in the rare enviable position of having demand exceed supply,” Odlum Brown analyst Barbara Gray said in a recent report about the chain’s past troubles. “It would have actually achieved positive [same store sales in the second quarter] if it had not run thin on product towards the end of the quarter.”
Now Ms. Day said that the company has tackled many of its inventory stocking problems with its investment in better systems, and by being more agile. “That’s been the silver lining in the downturn,” she said. “We’ve emerged with stronger capabilities than ever before.”
She said that new women’s running shorts, which cost from $64 to more than $80 and compete with Nike’s running short, are a hit, and the $74 running skirts are so popular that they’re “a rare find” in the stores.
But the chain has been able to keep popular core items, such as size six yoga wear and co-ordinating tops and pants, in stock, she said.
It’s all helping position it better for the Christmas period, Ms. Day said.
Nike is fine to find the partner’s growing after the crisis. It is also a great sign to Nike, because it shows the recovery of the economy. Of cource the development of all the companies can make the world become better and better.
