lululemonU.S. growth continues to slow, but the sportswear retailer is making big gains overseas, leading to a 9% increase in year-over-year sales.
The yoga pants company on Thursday beat Wall Street expectations in terms of revenue and results. and stated that he was “happy” with the start of the Christmas season. Still, on a call with analysts, CEO Calvin McDonald struck a cautious tone when discussing the company's fourth-quarter outlook.
“While we feel good about the start of the holiday season, we still have high-volume weeks ahead,” McDonald said. “Given the short holiday shopping season, we remain cautious in our planning for the fourth quarter overall.”
Here's how Lululemon performed in its fiscal third quarter compared to what Wall Street anticipated, according to a survey of analysts by LSEG:
- Earnings per share: $2.87 vs. $2.69 expected
- Revenue: $2.4 billion vs. $2.36 billion expected
Shares rose about 8% in extended trading on Thursday.
The company's reported net income for the three-month period ended Oct. 27 was $352 million, or $2.87 per share, compared with $249 million, or $1.96 per share , from the previous year.
Sales rose to $2.4 billion, up about 9% from $2.2 billion a year earlier.
For the all-important holiday shopping quarter, Lululemon expects revenue to be between $3.48 billion and $3.51 billion, representing 8% to 10% growth from a year ago. Analysts were expecting revenue of $3.5 billion, or 9.1% growth, which is roughly in line with the midpoint of guidance, according to LSEG.
Earnings per share are expected to be between $5.56 and $5.64, the high end of which is above the $5.59 analysts were expecting, according to LSEG.
In a call with analysts, CFO Meghan Frank said the company is planning the business “prudently” given the shortened holiday shopping season and the “uncertain macroeconomic environment.”
For the full year, Lululemon tightened its revenue guidance and raised it just a hair. It now expects fiscal 2024 revenue to be between $10.45 billion and $10.49 billion, compared to the previous forecast of $10.38 billion to $10.48 billion. The outlook would exceed the $10.44 billion that Wall Street expected, according to LSEG
Earnings per share are expected to be between $14.08 and $14.16, ahead of the $13.97 analysts expected.
Lululemon has been going through a rough patch over the last year. It continues to grow, but at a slower pace than before, and the competitive environment has become more intense. Lululemon has always competed with legacy giants like Nike, Gap's athlete and Levi's Beyond Yoga, but new disruptors like Vuori and Alo Yoga are also gaining share of the Canadian retailer.
The company has turned to China for growth, which so far is boosting sales across the business. Companywide comparable sales grew 4% during the quarter, ahead of the 3.2% growth Wall Street was expecting, according to StreetAccount.
Behind that figure is a 2% slowdown in comparable sales in the US, but a 25% increase internationally. Overall revenue grew 2% in the Americas during the quarter and 33% internationally. Still, the Americas remain Lululemon's largest market and the international market remains a fraction of its total revenue.
Lululemon has also had some self-inflicted challenges. It failed to launch a high-profile product earlier this year and lost sales in the United States by not offering the colors and sizes its core customers wanted.
When the company reported its earnings in August, McDonald insisted that the brand remained strong in the United States, but that its women's business had slowed because it did not have enough new styles to attract customers.
All of these problems coincided with the departure of Lululemon's former chief product officer, Sun Choe, who resigned in May and joined VF Corp.. In the wake of his departure, McDonald unveiled a new reporting structure on the product side of the house that merges Lululemon's brand and merchandising teams under the direction of Nikki Neuburger, director of brand and product activation. McDonald said the new structure makes the company more efficient and said it is “on track” to ramp up new product launches in time for the spring selling season.
“Our teams have been agile and have been looking for seasonal colors, prints and patterns. I'm sure you've seen several examples across our key franchises,” McDonald said. “These efforts have contributed to the sequential improvement of new additions within our assortment in the second half of the year…we continue to see significant growth potential in the US.”
In a note, GlobalData CEO Neil Saunders said it appears problems with Lululemon's products are behind this.
“During the third quarter, the women's range was fresh and interesting and there was more than enough to capture shoppers' attention,” the retail analyst said. “This improved conversion rate and helped with average basket size. In our opinion, Lululemon deserves praise for the quick course correction that underscores that it is a merchant-led organization.”
Lululemon's problems also come at a time when consumers, reeling from persistent inflation and an economy that feels worse than perhaps it really is, are more selective than ever and less forgiving when a brand makes a mistake. .
Amid its losing streak, Lululemon has resorted to stock buybacks to keep Wall Street happy. This month it approved a $1 billion increase in its stock buyback program. As of Thursday, it had about $1.8 billion left in the program.
Lululemon has also focused on increasing profitability amid uncertain demand. During the third quarter, gross margin grew more than expected, increasing 1.5 percentage points to 58.5%, ahead of the 57.5% analysts expected, according to StreetAccount.
