Lululemon's growth in the United States continues to slow, but the sportswear retailer is making big gains overseas, driving a 9% year-over-year increase in sales.
The yoga pants company beat Wall Street's earnings and bottom line expectations on Thursday. and said he was “satisfied” with the start of the holiday season. Still, on a call with analysts, CEO Calvin McDonald struck a cautious tone when discussing the company's outlook for the fourth quarter.
“While we are pleased with the start of the holiday season, we still have some high-volume weeks ahead of us,” McDonald said. “Given the shorter holiday shopping period, 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 what Wall Street expected, based on a survey of analysts by LSEG:
- Earnings per share: $2.87 versus $2.69 expected
- Income: $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 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 reached $2.40 billion, up about 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, representing growth of 8% to 10% from the previous year. Analysts had expected revenue of $3.50 billion, or growth of 9.1%, roughly in line with the midpoint of forecasts, according to LSEG.
It expects earnings per share to be between $5.56 and $5.64, the high end of which is higher than the $5.59 analysts expected, according to LSEG.
On a call with analysts, CFO Meghan Frank said the company was planning its business “conservatively” given the situation. shortened holiday shopping period and the “uncertain macroeconomic environment”.
For the full year, Lululemon tightened its revenue guidance and raised it by just a hair. It now expects fiscal 2024 revenue to be between $10.45 billion and $10.49 billion, compared to previous forecasts of between $10.38 billion and $10.48 billion. The outlook would exceed the $10.44 billion expected by Wall Street, according to LSEG.
Earnings per share are expected to be between $14.08 and $14.16, higher than the $13.97 analysts expected.
Lululemon has been going through a rough patch over the past 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 historical giants like Nike, Gap's Athlete and Levi's Beyond Yoga, but new disruptors such as Vuori and Alo Yoga are also taking share from the Canadian retailer.
The company has looked to China for growth, which has led to increased sales across its business so far. Companywide comparable sales rose 4% in the quarter, higher than the 3.2% growth Wall Street expected, according to StreetAccount.
Behind this figure is a 2% slowdown in comparable sales in the United States, but a 25% increase internationally. Overall revenue increased 2% in the Americas during the quarter and 33% internationally. Nonetheless, the Americas remains Lululemon's largest market, and international sales still represent only a fraction of its overall revenue.
Lululemon also had some self-inflicted challenges. The company missed a high-profile product launch earlier this year and missed U.S. sales when it failed to offer the colors and sizes its major customers wanted.
When the company reported earnings in August, McDonald insisted that the brand remained strong in the United States, but that its women's business had slowed because it didn't have enough new styles to attract customers. customers.
All of these issues coincided with the departure of Lululemon's longtime chief product officer Sun Choe, who resigned in May and joined VF Corp.. Following 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 leadership of Nikki Neuburger, head of brand and product activation . McDonald said the new structure makes the company more efficient and said it is “on track” to increase new product launches in time for the spring sales season.
“Our teams were agile and sought out seasonal colors, prints and patterns. I'm sure you've seen several examples across our key franchises,” McDonald said. “These efforts contributed to the sequential improvement of new products within our assortment during the second half of the year…we continue to see significant growth potential in the United States.” »
In a note, Neil Saunders, chief executive of GlobalData, said it appears Lululemon's product struggles are to blame for all this.
“During the third quarter, the women's range looked fresh and interesting and there was more than enough to attract shoppers' attention,” the retail analyst said. “This has both improved conversion rate and helped reduce average basket size. In our view, Lululemon deserves praise for its rapid course correction, which highlights that it is an organization led by traders.”
Lululemon's struggles also come at a time when consumers, reeling from persistent inflation and an economy that appears worse than it may actually be, are more demanding than ever And less forgiving when a brand makes a mistake.
Amid this difficult period, Lululemon has turned to stock buybacks to satisfy Wall Street. It approved a $1 billion increase to its stock buyback program this month. As of Thursday, it had about $1.8 billion remaining 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% expected by analysts, according to StreetAccount.
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