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Lululemon Reports Balanced Performance Amid Slowing U.S. Growth
Lululemon continues to experience a deceleration in its U.S. growth while achieving significant advancements in international markets, culminating in a year-over-year sales increase of 9%.
On Thursday, the athletic apparel retailer announced that it surpassed Wall Street’s expectations for both revenue and earnings per share, expressing satisfaction with the initial phase of the holiday season.
Quarterly Financial Performance
In the fiscal third quarter, Lululemon delivered noteworthy results compared to analyst expectations from a survey conducted by LSEG:
Earnings per Share: $2.87 vs. $2.69 expected
Revenue: $2.40 billion vs. $2.36 billion expected
Following the announcement, the company’s shares increased by approximately 8% during extended trading hours on Thursday.
For the three-month period ending on October 27, Lululemon reported a net income of $352 million, translating to $2.87 per share. This marks a significant rise from the previous year’s $249 million, or $1.96 per share.
Revenue increased to $2.40 billion, reflecting a 9% rise from $2.20 billion the previous year.
Outlook for the Holiday Season
Looking ahead to the vital holiday shopping period, Lululemon anticipates revenue between $3.48 billion and $3.51 billion, signifying an 8% to 10% growth from the previous year. Analysts project revenue of $3.50 billion, which aligns closely with the company’s expectations, as indicated by LSEG.
Additionally, Lululemon forecasts earnings per share in the range of $5.56 to $5.64, surpassing the anticipated $5.59 from analysts.
Full-Year Expectations
For its fiscal year 2024, Lululemon made slight adjustments to its revenue guidance, now predicting between $10.45 billion and $10.49 billion, up from earlier estimates of $10.38 billion to $10.48 billion. This adjusted outlook would exceed the $10.44 billion forecasted by Wall Street.
Projected earnings per share are anticipated to be between $14.08 and $14.16, also above the analysts’ expectations of $13.97.
Challenges and Competitive Landscape
Despite experiencing growth, Lululemon faces challenges as its expansion rate slows compared to previous years, amidst an increasingly competitive retail environment. While the company traditionally contended with established brands like Nike and Athleta, emerging competitors such as Vuori and Alo Yoga are beginning to gain traction and capture market share.
The retailer is looking toward China as a significant growth market, which is positively influencing overall sales. Company-wide comparable sales grew by 4% in the recent quarter, exceeding the 3.2% anticipated growth. This figure, however, masks a 2% decline in comparable sales in the U.S., juxtaposed with a remarkable 25% increase in international sales. Revenue in the Americas grew by 2%, while international revenue soared by 33%. Despite this growth, the Americas continue to be Lululemon’s most substantial market, with international contributions remaining relatively modest.
Lululemon has encountered some self-imposed hurdles, including difficulties with a high-profile product launch this year and missed sales opportunities due to inadequate offerings of desired colors and sizes in the U.S. market.
In a previous earnings report, CEO Calvin McDonald emphasized the brand’s resilience in the U.S. but acknowledged that the women’s segment had faced slowdowns attributed to a lack of fresh styles to engage customers.
The company’s challenges have coincided with the departure of its former Chief Product Officer, Sun Choe, who left in May to join V.F. Corp. This transition occurred during a time when consumers, pressured by persistent inflation and economic uncertainty, are exercising greater discernment and tolerance regarding brand missteps.
Shareholder Strategies and Profitability Focus
In response to its current challenges, Lululemon has approved a $1 billion enhancement to its stock buyback program, seeking to reassure investors. As of Thursday, approximately $1.8 billion remains available in this program.
Moreover, the company is emphasizing profitability in light of a fluctuating market. In the third quarter, Lululemon’s gross margin improved more than expected, rising by 1.5 percentage points to 58.5%, notably above the anticipated 57.5% from analysts.
Source
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