Pre-Earnings Insights: Will LULU Deliver Another Groundbreaking Quarter?

Shares in Lululemon have surged 57% year-to-date. That’s versus 14% for the S&P 500. Ahead of the Lululemon earnings call the big question for investors is: is there more room left to run? Here we explore LULU’s key digital trends to gain insight into its online health.

For a stock like LULU the importance of the digital world cannot be understated. With the coronavirus pandemic hampering physical store sales growth, the company’s omnichannel strategy is now a critical part of its success. Its Power of Three growth plan includes the doubling of e-commerce by 2023.

With this in mind, we used Similarweb’s alternative data to look at:

• Website traffic trends and engagement
• How effectively LULU converts traffic into sales
• LULU’s marketing channel breakdown

CEO Calvin McDonald stated on the last earnings call: “We see the future of retail accelerate through an expansion of e-commerce and digital  sweat offerings.” He made the comment after LULU delivered standout digital growth of 157%, rising to 61% of sales.

Nonetheless, due to Covid-19, LULU refrained from providing detailed financial guidance. The result: relatively high uncertainty going into the print. As such, insights gleaned from digital data are now even more fundamental to analyzing LULU’s outlook.

Website Traffic Spiking

Customers are embracing online shopping and leisurewear- and LULU is a prime beneficiary of these two accelerated trends. As the graph below shows, traffic to lululemon.com spiked to over 12.6 million visits in July due to a rare online warehouse sale.

Post-sale, traffic pulled back to 9.4 million website visits in August. Subsequently, online visits held relatively steady for both September and October (at 9.0 million and 9.5 million respectively) as physical stores also began to reopen. We can see that website traffic in September is still 51% higher than September 2019, with October also up 53% YoY.

Looking from October to November, traffic exploded a stellar 73%, a pattern very closely mirrored by urbanoutfitters.com. This suggests that LULU, and indeed fashion retailers in general, appear set for a very strong end-of-year surge.

Successfully Turning E-Traffic Into Dollars

Similarweb’s funnel analysis reveals the number of converted visits and LULU’s conversion rate pre-earnings, indicating how increased traffic will impact revenue. In fiscal Q3, LULU turned 5.5% of its US website visits into sales.

Most encouragingly, the athleisure retailer is turning more and more visits into sales over time. “We pulled forward investments … to ensure our guests continue to receive an elevated experience when shopping our sites,” revealed exec VP Meghan Frank on the last earnings call.

And these efforts are paying off. For instance, the conversion rate at the beginning of 2018 came in at 3.7%- shooting to 5.3% in October 2020.

This compares very favorably against LULU’s competitors. Nike recorded a conversion rate of 3.2% in October, with Alo Yoga at just 2.6%. In fact, out of the large apparel brands tracked by Similarweb, LULU boasts one of the highest conversion rates.

But Conversion Is Dipping

As the graph does illustrate, the conversion rate has been dropping since May’s 6.87% peak. So while the rate remains undeniably high, investors should be prepared in case the rate moderation sparks near-term stock volatility.

The key is that this downward trend reverses in due course. Luckily this seems likely given that both LULU’s brand appeal and its long-term potential for growth remain very strong.

A Savvy Marketing Strategy

For LULU direct traffic and organic search were the two main sources of traffic for FQ3 (generating 40% and 38% of traffic respectively), with paid search in third place.

From an investor perspective, this is a very bullish signal. Both direct traffic and organic search are not only wallet-friendly marketing channels, but they also demonstrate a strong brand awareness from consumers.

They produce much higher quality traffic. It makes sense that a consumer who specifically seeks out the Lululemon website (i.e. direct traffic) is more likely to make a purchase and spend longer on the website. Indeed, LULU boasts the lowest bounce rate vs competitors urbanoutfitters.com, aloyoga.com and nike.com – an impressive datapoint for the rapidly growing athleisure retailer.

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You can download the full LULU pre-earnings backing data here…