lululemonGrowth in the U.S. continues to slow, but the sportswear retailer is making huge headway overseas, with sales up 9% year over year.
The yoga pants company beat Wall Street’s revenue and profit expectations on Thursday And said he was “delighted” with the start of the holiday season. Still, on a conference call with analysts, CEO Calvin McDonald took a cautious approach when discussing the company’s fourth-quarter outlook.
“While we are pleased with the start of the holiday season, we still have significant volumes ahead of us in the weeks ahead,” McDonald said. “Given the shorter holiday shopping season, we continue to be thoughtful in our overall planning for the fourth quarter.”
Here’s how Lululemon performed in its fiscal third quarter compared to Wall Street expectations, according to a survey of analysts by London Stock Exchange Group (LSEG):
- Earnings per share: $2.87 vs expected $2.69
- income: $2.40 billion vs. $2.36 billion expected
The stock rose about 8% in after-hours trading Thursday.
The company’s net income for the three-month period ended Oct. 27 was $352 million, or $2.87 a share, compared with $249 million, or $1.96 a share, a year earlier.
Sales increased to US$2.4 billion, an increase of approximately 9% from US$2.2 billion in the same period last year.
For the all-important holiday shopping quarter, Lululemon expects revenue to be between $3.48 billion and $3.51 billion, an increase of 8% to 10% from the previous year. LSEG said analysts expected revenue of $3.5 billion, or 9.1% growth, roughly in line with the midpoint of guidance.
Earnings per share are expected to be in a range of $5.56 to $5.64, with the upper end higher than analysts’ expectations of $5.59, according to LSEG.
Finance chief Meghan Frank said on a conference call with analysts that the company was planning the business “cautiously” given the current situation. Holiday shopping season shortened and an “uncertain macro environment.”
Lululemon tightened its full-year revenue guidance, raising it just a tiny bit. Fiscal 2024 revenue is now expected to be in a range of $10.45 billion to $10.49 billion, compared with previous guidance of $10.38 billion to $10.48 billion. LSG says outlook will beat Wall Street forecast of $10.44 billion
Earnings per share are expected to be between $14.08 and $14.16, above analysts’ expectations of $13.97.
Lululemon went through a rough patch last year. It’s still growing, but at a slower pace than before, and the competitive environment has become more intense. Lululemon has been competing with traditional giants such as Nike, gap’s athletes and Leviof Beyond Yoga, but new disruptors like Vuori and Alo Yoga are also taking market share from the Canadian retailer.
The company has turned to China for growth, with sales improving across the business so far. Companywide comparable sales rose 4% in the quarter, according to StreetAccount, beating Wall Street expectations for 3.2% growth.
Behind this figure was a 2% decline in U.S. comparable sales, but a 25% increase in international comparable sales. Overall revenue in the Americas region increased 2% in the quarter and overall revenue in the International region increased 33%. Despite this, the Americas remain Lululemon’s largest market, and international markets still account for only a small portion of its total revenue.
Lululemon also has some self-inflicted challenges. The company stumbled upon a high-profile product launch earlier this year and missed out on U.S. sales after failing to offer the colors and sizes its core customers wanted.
When the company reported earnings in August, McDonald’s insisted the brand was still going strong in the United States but that its women’s clothing business had slowed because there weren’t enough new styles to attract customers.
All of these issues coincide with the departure of longtime Lululemon chief product officer Sun Choe, who resigned in May and joined VF Corporation. Following her departure, McDonald unveiled a new reporting structure for the company’s products, which combines Lululemon’s brand and marketing teams, led by chief brand and product activation officer Nikki Neuburger. McDonald’s said the new structure makes the company more efficient and said it was “on track” to increase new product launches in time for the spring selling season.
“Our team has been agile and has been pursuing seasonal colors, prints and patterns. I’m sure you’ve seen several examples across our key franchises,” McDonald said. “These efforts will contribute to the continued novelty of our product range in the second half of the year… We continue to see significant growth potential in the U.S. market”
GlobalData managing director Neil Saunders said in a report that Lululemon’s product woes appear to be the reason behind it.
“Throughout the third quarter, the women’s collection felt fresh and interesting enough to capture shoppers’ attention,” the retail analyst said. “This both improved conversion rates and helped increase average basket size. We think “Lululemon deserves credit for its quick course correction, which underscores what a business-driven organization it is.”
Lululemon’s woes also come at a time when consumers are reeling from persistent inflation and an economy that feels worse than it actually is. More picky than ever and less tolerant When a brand makes a mistake.
Lululemon has turned to stock buybacks to please Wall Street during tough times. This month, the company approved a $1 billion increase in its stock repurchase program. As of Thursday, about $1.8 billion remained in the program.
Lululemon is also working to improve profitability amid uncertain demand. According to data from StreetAccount, gross profit margin increased more than expected in the third quarter, rising 1.5 percentage points to 58.5%, higher than analysts’ expectations of 57.5%.
