Following our previous review of the athletic footwear category where we highlighted that the industry would likely have another challenging year, we got results from lululemon and HOKA (which is owned by Deckers) this week. Lululemon’s very strong results once again demonstrated that it is an idiosyncratic brand that is driven by product and local connection. CEO Calvin McDonald said, “Our product assortment is supported with a large portion which is non-seasonal; the versatility and multiple wear occasions, which cross both sweat and social; as well as the frequency of our new innovative drops that guests wait for and have become accustomed to; and finally, the community connection that we drive through a lot of our initiatives.” Revenue in the U.S. was up 20%, driven by growth in both e-commerce and physical stores. McDonald continued, “Our [global] guest metrics were healthy in Q1 in terms of both traffic transaction and new guest acquisition…transactions by existing guests increased 22%, and our transactions by new guests increased 28%. And traffic was also strong across both channels with stores up over +30% and e-commerce up approximately +30%.” In terms of the current trend, management said it was pleased with how Q2 was pacing. U.S. store revenue averaged an incredible $8.3M, or $2K per square foot. The women’s business is still the draft horse, rising +22% year-over-year. During the quarter, seven stores were added in the U.S. bringing the total to 357, up from 325 last year.
On its new membership program, named lululemon Essentials, McDonald noted, “Our stores are an integral part of this ecosystem as they provide connection points within local communities across the world and serve many purposes, including allowing our guests to interact with our educators to learn about our product, the technical innovations that can be found within our assortment and the unmet needs they solve. Secondly, our stores act as hubs for our local ambassadors and fitness studios. Guests looking for new ways to sweat in their neighborhood need only enter the local lululemon store where our educators will point them to the best studios in town. Thirdly, our stores are the focal point for local events that range from hosting run clubs and other sweat sessions to parties and community celebrations. And finally, our stores provide support for some of our larger-scale activations, such as our 10K runs, product launches, including footwear and our lululemon Studio launch last fall.”
For Deckers Q1 2023, HOKA substantially grew its revenue (+40%, or an increase of +$114M), which was partially offset by a -16%, or -$60M, decline for UGG. Management expects HOKA to maintain its outsized growth. For the U.S., management shared that HOKA more than doubled the number of purchasers aged 18-34 years old. According to CEO Dave Powers, "We view the opportunity with kids as an avenue to further expose the brand to parents and younger athletes over the long term." (Thus, the reason why they are using Foot Locker for distribution.) Over the next twelve months, management expects HOKA to grow its revenue by +20%, or +$300M year-over-year, with an emphasis to control channel inventory and keeping the brand healthy and at full-price. Overall company-wide revenue growth is expected to be more subdued due to fewer wholesale shipments of UGG product given traffic sales challenges for U.S. department stores.
