Lululemon‘s US growth continues to slow, but the athletic apparel retailer is making big gains overseas, leading to a 9% year-over-year increase in sales.
The yoga pants company beat Wall Street expectations on both the top and bottom lines on Thursday And said he was “delighted” with the start of the holiday season.
Here’s how Lululemon performed in its fiscal third quarter compared to what Wall Street was expecting, based on a survey of analysts by LSEG:
- Earnings per share: $2.87 vs $2.69 expected
- Income: $2.40 billion vs. $2.36 billion expected
Shares rose nearly 8% in extended trading Thursday.
The company’s net income for the three months ended Oct. 27 was $352 million, or $2.87 per share, compared with $249 million, or $1.96 per share, a year earlier.
Sales rose to $2.40 billion, up nearly 9% from $2.20 billion a year earlier.
For the all-important holiday shopping quarter, Lululemon expects revenue between $3.48 billion and $3.51 billion, which represents growth of 8% to 10% from the prior year. Analysts had expected revenue of $3.50 billion, or growth of 9.1%, which was in line with the midpoint of guidance, according to LSEG.
It expects earnings of between $5.56 and $5.64 per share, ahead of the high end of the $5.59 analysts expected, according to LSEG.
For the full year, Lululemon tightened its revenue guidance and grew it by just a hair. It now expects fiscal 2024 revenue to come in between $10.45 billion and $10.49 billion, compared to previous guidance of between $10.38 billion and $10.48 billion. The $10.44 billion outlook topped Wall Street’s expectations, according to LSG
It expects earnings of between $14.08 and $14.16 per share, ahead of the $13.97 expected by analysts.
Lululemon has hit a rough patch over the past year. It is still growing, but at a slower pace than before, and the competitive environment is more intense. Lululemon has always competed with legacy giants Nike, gap’s Athleta and LevyBeyond yoga, however, new disruptors like Woori and Aloe Yoga are taking share from Canadian retailers.
The company has turned to China for growth, which has so far lifted sales across the overall business. Comparable sales across the company grew 4% in the quarter, ahead of the 3.2% growth Wall Street was expecting, according to the Street Account.
Behind that number was a 2% decline in comparable sales in the US, but a 25% increase internationally. Overall revenue was up 2% in the Americas and 33% internationally in the quarter. Still, America remains Lululemon’s largest market, and international is still a fraction of its overall revenue.
Even Lululemon has some Self-motivated challenges. It botched 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 reported earnings in August, CEO Calvin McDonald insisted the brand was strong in the US, but 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 longtime chief product officer Sun Cho, who resigned in May and joined VF Corporation. It comes at a time when consumers, reeling from persistent inflation and an economy that thinks things are probably worse than they really are, are more selective than ever and less forgiving when a brand gets it wrong.
Amid its rough patch, Lululemon has turned to stock buybacks to keep Wall Street happy. It also approved a $1 billion increase to its stock buyback program this month. As of Thursday, it had about $1.8 billion left in the program.
Lululemon is focused on increasing profitability amid uncertain demand. In the third quarter, gross margin rose 1.5 percentage points to 58.5%, compared to the 57.5% expected by analysts, according to the Street Account.
