Lululemon Athletica Inc. (LULU) delighted investors with its robust third-quarter results, sending its stock soaring by 16% during Friday’s trading session. The upscale athletic apparel brand outperformed analysts’ expectations on both revenue and earnings, while also upgrading its full-year guidance for 2024.
Third quarter highlights
The company reported a revenue of $2.4 billion, marking a notable increase from the $2.2 billion recorded during the same period last year. This surpassed the $2.36 billion estimate analysts had predicted. Earnings per share (EPS) also beat expectations, reaching $2.87 against the forecasted $2.75, and significantly outpacing last year’s $2.53.
Despite this strong performance, Lululemon continues to face challenges in its North American market, where sales growth remains in decline amid heightened competition. Same-store sales in the region fell by 2%, a continuation of the 3% drop observed in the second quarter. However, a 4% overall increase in same-store sales was largely driven by strong international performance. Analysts had anticipated year-over-year growth of 2.5%.
Outlook for the holiday season and beyond
Looking ahead, Lululemon has set its fourth-quarter revenue guidance between $3.48 billion and $3.51 billion, aligning with consensus expectations of $3.5 billion. EPS projections for the quarter were slightly below estimates, coming in at $5.56 to $5.64 compared to the anticipated $5.70.
For the full year, the company raised its net revenue guidance to a range of $10.45 billion to $10.49 billion, up from the previous $10.38 billion to $10.48 billion forecast. It also lifted its EPS forecast to between $14.08 and $14.16, surpassing the prior range of $13.95 to $14.15.
Calvin McDonald, Lululemon’s CEO, highlighted the brand’s enduring global appeal despite North American challenges. “Our performance in the third quarter shows the enduring strength of Lululemon globally, as we saw continued momentum across our international markets and in Canada,” McDonald stated.
Expressing optimism for the holiday shopping season, he added, “We are pleased with the start to our holiday season and remain focused on accelerating our US business and growing brand awareness worldwide.”
Improved margins and stock buybacks
Lululemon’s gross margins rose sequentially, climbing 150 basis points to 58.5%, following an 80-basis-point improvement in the second quarter. To further bolster shareholder value, the company announced the approval of a $1 billion increase to its stock buyback programme.
Challenges from competitors and domestic market pressures
While the latest results showcase Lululemon’s resilience, the company has faced significant headwinds this year. Its stock has underperformed the broader Consumer Discretionary sector, which is up 27% year-to-date, and has lost over 30% of its value in 2023 prior to the recent rally.
Emerging competitors like Alo Yoga and Vuori have been making inroads with trendier styles, presenting a formidable challenge to Lululemon’s dominance in the premium athleisure market. The brand’s North American sales have borne the brunt of these pressures, adding urgency to its efforts to revitalise domestic growth.
Speaking to Yahoo Finance, McDonald expressed confidence in Lululemon’s ability to bounce back in its key North American market. “There’s no doubt in my mind that we have a long runway of growth still in the Americas,” he said. “All data points to a brand that remains highly engaged with our guests and a mix opportunity that we own.”
More Read
International markets drive growth
Lululemon’s international markets continue to provide a bright spot for the company. Strong demand outside North America has not only offset regional weaknesses but also positioned the company as a global leader in athletic apparel.
Retail analysts point to the company’s strategy of expanding brand awareness and tailoring products to international tastes as a crucial factor in driving growth abroad.
What lies ahead
Lululemon’s ability to navigate competitive pressures while leveraging international growth and innovative products will be critical as it moves into 2024. Its improved margins, enhanced buyback programme, and revised outlook signal confidence in the company’s long-term potential.
With the holiday shopping season underway, all eyes are now on whether Lululemon can sustain its momentum and address the competitive challenges that have impacted its North American market. Investors remain cautiously optimistic, buoyed by the company’s demonstrated resilience and ability to adapt to a shifting retail landscape.
As McDonald summarised, “We’re focused and excited to deliver in Q1, returning to historical levels of performance. We feel confident in the inflection point ahead.”
