Lululemon's U.S. growth continues to slow, but the athletic apparel retailer is making big gains abroad, leading to a 9% year-over-year sales increase.
The yoga pants company beat Wall Street expectations on the top and bottom lines on Thursday and said he was “pleased” with the start of the holiday season.
Here's how Lululemon performed in its fiscal third quarter, compared to what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: $2.87 vs. $2.69 expected
- Gain: $2.40 billion versus $2.36 billion expected
Shares rose about 8% in extended trading Thursday.
The company's reported net income for the three-month period ended Oct. 27 was $352 million, or $2.87 per share, compared to $249 million, or $1.96 per share, a year earlier
Revenue rose to $2.40 billion, up about 9% from $2.20 billion a year earlier.
For the all-important holiday shopping quarter, Lululemon expects sales to be between $3.48 billion and $3.51 billion, representing year-over-year growth of 8% to 10%. Analysts had expected revenue of $3.50 billion, up 9.1%, which LSEG said is about in line with the midpoint of expectations.
The company expects earnings per share to be between $5.56 and $5.64, with the upper end higher than the $5.59 analysts expected, LSEG said.
For the full year, Lululemon tightened revenue expectations, raising them by just a hair. It now expects fiscal 2024 revenues to come in between $10.45 billion and $10.49 billion, compared with previous expectations of between $10.38 billion and $10.48 billion. According to LSG, the outlook would be higher than the $10.44 billion that Wall Street had expected
Earnings per share are expected to come in between $14.08 and $14.16, higher than the $13.97 analysts expected.
Lululemon has gone through a rough patch over the past year. It is still growing, but at a slower pace than before, and the competitive environment has become more intense. Lululemon has always competed with old giants like Nike, Hole's Atleta and Levi's Beyond Yoga, but newer disrupters such as Vuori and Alo Yoga are also taking a share of the Canadian retailer.
The company has turned to China for growth, which is so far driving sales across the company. Comparable sales across the company grew 4% this quarter, higher than the 3.2% growth Wall Street had expected, according to StreetAccount.
That figure masks a 2% slowdown in comparable sales in the US, but an increase of 25% internationally. Total revenue grew 2% in the Americas and 33% internationally during the quarter. Yet America remains Lululemon's largest market, with international still a fraction of its total sales.
Lululemon has also had some self-imposed challenges. The company had a high-profile product launch earlier this year and lost sales in the US when it failed to offer the colors and sizes its core customers wanted.
When the company announced earnings in August, CEO Calvin McDonald emphasized that the brand remains strong in the U.S. but that its women's business had slowed because it didn't have enough new styles to entice customers.
All of these issues coincided with the departure of Lululemon's chief product office Sun Choe, who stepped down in May and joined VF Corp. It also came at a time when consumers, reeling from persistent inflation and an economy in worse shape than it may actually be, are more picky than ever and less forgiving when a brand makes a mistake.
Amid the tough times, Lululemon has turned to stock buybacks to keep Wall Street happy. The country this month approved a $1 billion increase in its share buyback program. As of Thursday, it still had about $1.8 billion in the program.
Lululemon has also focused on increasing profitability amid uncertain demand. During the third quarter, gross margin grew more strongly than expected, by 1.5 percentage points to 58.5%, higher than the 57.5% that analysts had expected according to StreetAccount.
