Commentary

Mirror, Mirror: Lululemon Polishes Its Swing At Peloton

Lululemon just posted quarterly numbers, easily beating forecasts. That's not big news; the company has consistently been an overachiever. What is intriguing is that it’s finally revealing a bit more about Mirror, the connected-fitness company it acquired back in June.

It's now selling Mirror, its $1,500 home workout device, in 18 Lululemon stores, as well as direct-to-consumer. And the Vancouver-based company says sales of the flat-screen device are running ahead of projections, expected to reach more than $150 million in sales for 2020.

"Since the acquisition, we have made steady progress," says Calvin McDonald, chief executive officer, in a webcast for investors.

With a marketing push that includes a stepped-up email campaign and a dedicated tab in its ecommerce platform, Lululemon’s 18-store pilot is set "to test and learn how to refine the selling experience," says McDonald. Next year, he expects the test to expand to hundreds of its stores.

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"As the company increasingly focuses on marketing Mirror," it will eat into margins, writes Brian Nagel, an analyst who follows the company for Oppenheimer. But he expects "sales at the chain should continue to recover and potentially normalize to underlying better-than-pre-pandemic levels, given the structural shifts in consumer spending patterns; heightened competitive fallout; and ongoing, substantial product innovation."

Over at Baird, analyst Mark R. Altschwager commended Lululemon's results, and its "uniquely positioned brand (creating a wellness ecosystem, with innovative product, digital content, community connections), best-in-class execution, healthy operating momentum (despite pandemic headwinds) and whitespace opportunities (product/geography)."

He acknowledges, though, that details about Mirror remain scarce.

And while Lululemon certainly knows its way around yoga togs and ecommerce, the competition in connected equipment is fierce.

After buying a Mirror for $1,500 and paying $250 for delivery and installation, users pay $39 a month for a subscription to monthly classes.

While Mirror’s design is innovative, it's not unique. Other D2C brands use similar screens, including Tempo Studio and Tonal, which focus on strength training. Echelon has launched Reflect, which has many of Mirror's features, at a much more affordable $1,000 for the device.

Currently, Peloton is dominating the high-end workout-from-home culture. Last month, it reported a 232% gain in revenue to $757.9 million. It now has 1.33 million connected digital subscriptions, a 137% improvement from the prior year's comparable period. The number of paid digital subscriptions, which don't require owning one of its bikes or treadmills but still provide digital access to its many classes, climbed 382%, to 510,000. Total membership is now 3.6 million.

No one is arguing that connected fitness and a love of high-priced virtual "boutique" fitness classes are here to stay. But the ongoing success of all these brands depends on a major question: Will millions of people still want to work out from home as the pandemic eases?

Maybe. It's more convenient and saves time. And clearly,  some people find it rewarding. But millions of people (me included) are longing for the day we can return to a real yoga studio, not a living room full of dogs, dog hair and other distractions.

For the third quarter of its fiscal year, Lululemon's net revenue jumped 22% to $1.1 billion, including a 19% gain in North America and an impressive 45% leap internationally. Direct-to-consumer net revenue shot up 94% and now accounts for almost 43% of total revenue. Total comparable sales increased by 19%.

Net income rose to $143.6 million, up from $126 million a year ago.

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