Calvin McDonald, chief executive officer of Lululemon Athletica Inc., is feeling good about the year ahead.
“In every market, we’re entering ‘25 very optimistic with how the consumer is engaging,” said McDonald in an interview with WWD and Footwear News editors this week in New York. “We’re equally excited about the newness that we have.”
That’s a return to form for Lululemon, which had an unusual misstep last year when it delivered on its core products, but fell short on new looks and paid the price with consumers.
Lululemon projected this week that fourth-quarter revenues would range from $3.56 billion to $3.58 billion — growth of 11 to 12 percent overall, or 6 to 7 percent excluding an extra week in this fiscal year.
While that’s not quite the powerhouse growth Lululemon has become known for, McDonald painted the picture of a company that has course-corrected and is now ready to take off again.
The ups and downs of any one fashion company might not say much about the market overall, but Lululemon is in something of a special spot — and in the process of proving if it can hold to its dramatic growth curve even after years of being an industry darling.
Annual sales stood at less than $3 billion when McDonald joined from Sephora in August 2018 and doubled to over $6 billion by 2021. Now, Lululemon is ahead of plan to double once more and hit $12.5 billion by its end of 2026 target date.
“We see the opportunity to double this business again,” said McDonald, although he didn’t give a specific timeframe.
That’s a neat trick — going from less than $3 billion in sales to plotting a course to $26 billion — and it’s garnered Lululemon a stock market capitalization of $45.6 billion.
In Wall Street terms, that makes Lululemon the size of seven Abercrombie & Fitch Co.’s or three Ralph Lauren Corp.’s or nearly 14 Under Armour Inc.’s.
To start to explain that valuation, McDonald pointed to:
The growth of the active and wellness category that has “only gotten stronger since the pandemic.”
The versatility, function and feel of the Lululemon product.
The convenience of having a direct-to-consumer position with stores and a website.
But those are attributes that many brands share.
McDonald said that, at Lululemon: “Our model, our approach to product is fundamentally different than when I look at others that are in this space. We obsess about, ‘What activity is our guests looking to do? How do they want to feel in that activity? And what are the unmet needs and how do we create it?’ It begins with our obsession over overall materials. And we have hundreds of proprietary raw materials that are unique. Many take three, five more years to create and engineer. It’s why the product feels the way it does when the guest puts it on.”
McDonald also attributes much of the company’s outsized success to a kind of expanded core business.
The center mass of the assortment is made up of the company’s ABC, Define, Align and Swiftly ranges in key colors.
“That makes up the base of our assortment mix that allows us to have the markdown ratio and penetration we do,” McDonald said. “It allows us to keep growing the business year in and year out. We’re high performance, high style, but it’s definitely rooted in our philosophy and position around innovating.”
On top of that offering, Lululemon brings newness to those looks with fresh colors, prints and graphics.
Then there’s another layer, a test of a new fabric or silhouette that might last a season or two. And then at the top, McDonald said there’s “truly something that’s innovative” like “a new performance franchise.”
Lululemon ran into trouble last year by not offering enough of the newness.
“Product decisions were made that leaned more heavily on core through parts of last year,” the CEO said. “The guest was looking for the historical newness that sits on top of that that we didn’t have in our mix.”
Investors are watching to see exactly how that return plays this year in the U.S. market, which has been a big part of the Vancouver, British Columbia-based company’s growth.
But McDonald is also working on a slew of other growth ventures.
The CEO breaks down the athletic apparel space by looking at where brands come from.
“You have those that have grown from footwear, you have those that have grown from apparel and you have those that have grown from outerwear,” he said. “I think outerwear businesses and brands have shown the greatest challenge to move beyond outerwear into other categories.”
The brands that started in apparel — the two biggest players are Lululemon and Under Armour — have had an easier time expanding into new categories, he contended.
Under Armour has been in reset mode for some time. But Lululemon keeps reaching out and trying new things. It is currently expanding with bags, outerwear and footwear.
They are categories for the future.
And McDonald said the brand doesn’t need footwear to hit its current growth target. So Lululemon can take its time to get footwear right and has rolled out performance shoes designed specifically for a woman’s foot, not a man’s foot.
“There is white space still in this, but it’s early for us,” McDonald said. “We’re ahead of where I thought we would be, but we’re taking a very test-and-learn to figure out the feel, the fit to figure out the styling side and then we will really accelerate it as we continue to introduce and we have plans over the next 18 months to keep introducing new silhouettes and styles across performance and lounge casual.”
The brand is also looking out at the world.
Lululemon is in 26 markets currently and is going to be opening in Italy this year while entering Denmark, Belgium, Czech Republic and Turkey through franchise agreements. India is also an opportunity.
The Americas accounted for 79 percent of the brand’s sales in 2023 and McDonald said there’s nothing preventing the company from seeing a 50-50 split between North America and the rest of the world.
“And that’s not going to come at the expense of North America, not growing,” he said. “The current plan is to have North America grow at double digits while we quadruple our international business.”
Likewise, the brand has already established itself in men’s, which makes up 25 percent of the business, and McDonald said that could continue to grow.
That has the brand pushing its core while looking to grow with footwear, bags and outerwear, mens and international.
“When you’re running and leading a growth organization, some of the challenge that I have with our leadership is where do you make the investments?” McDonald said.
“We want to go after big opportunities, we want to make sure that our guest is pulling us into those versus us pushing our way in and we want to understand the difficulty of the dive. Do we see white space? Do we see unique differentiated product? If we see unique differentiated product opportunities and our guest is pulling and asking us to come up with solutions and it’s a meaningful business, those are the ones we prioritized.”
It sounds like Lululemon has a lot of priorities — maybe even $26 billion worth.
