Lululemon’s Stock Rises Amid International Growth, Despite Slowing U.S. Sales
Lululemon Athletica surpassed Wall Street’s expectations in its fiscal third quarter, reporting solid earnings and revenue growth. While U.S. sales are showing signs of slowing, the athletic apparel giant has found success internationally, with global markets driving significant gains. This dynamic balance helped push Lululemon’s stock up by 8% in extended trading.
Strong Quarterly Results and Modest Holiday Guidance
For the quarter ending October 27, Lululemon reported earnings per share (EPS) of $2.87, beating analyst expectations of $2.69. Revenue reached $2.40 billion, a 9% increase from $2.20 billion in the same period last year, and higher than the forecasted $2.36 billion. The company’s net income grew to $352 million, up from $249 million a year earlier.
CEO Calvin McDonald expressed cautious optimism about the holiday shopping season, emphasizing the importance of the weeks ahead given the shortened timeframe. Lululemon anticipates revenue between $3.48 billion and $3.51 billion for the fourth quarter, representing an 8% to 10% growth year-over-year. Expected EPS for the period is between $5.56 and $5.64, slightly above the $5.59 analysts had predicted.
Geographic Growth Dynamics
While U.S. sales slowed by 2% in the quarter, international markets more than compensated with a 25% surge in comparable sales. Revenue in the Americas rose by just 2%, while international sales soared by 33%. Despite this disparity, the U.S. remains Lululemon’s largest market, with international growth still comprising a smaller portion of its overall revenue.
China has been a significant driver of global growth for the brand. Company-wide comparable sales rose 4%, exceeding Wall Street’s forecast of 3.2%. This growth underscores the company’s efforts to expand its footprint in high-potential markets abroad.
Navigating Product Challenges and Competitive Pressures
Earlier this year, Lululemon faced setbacks, including a poorly executed product launch and missed opportunities due to inadequate size and color availability in the U.S. These issues, coupled with intensified competition from established brands like Nike and Gap’s Athleta, as well as emerging rivals such as Vuori and Alo Yoga, impacted performance.
To address these challenges, McDonald introduced organizational changes, merging the brand and merchandising teams under a unified leadership structure. This adjustment, led by Chief Brand and Product Activation Officer Nikki Neuburger, aims to streamline operations and accelerate the release of new products. McDonald highlighted that the company has already seen improvements, with refreshed styles and seasonal colors driving stronger customer engagement in the latter half of the year.
Financial Adjustments and Profitability Focus
Amid an uncertain economic environment, Lululemon has leaned on stock buybacks to maintain investor confidence. The company recently approved a $1 billion increase to its repurchase program, leaving $1.8 billion available.
Additionally, efforts to boost profitability are bearing fruit. Lululemon’s gross margin increased by 1.5 percentage points to 58.5%, surpassing the expected 57.5%. This improvement reflects better inventory management and pricing strategies.
Looking Ahead
For the full fiscal year, Lululemon has slightly raised its revenue guidance, expecting between $10.45 billion and $10.49 billion, compared to the prior range of $10.38 billion to $10.48 billion. Analysts had anticipated $10.44 billion in revenue. Full-year EPS is projected to be between $14.08 and $14.16, exceeding the $13.97 forecast.
Retail analysts like Neil Saunders of GlobalData have noted that Lululemon’s ability to quickly address its product issues has positioned the brand for recovery. “The women’s range felt fresh and interesting, improving both conversion rates and average basket sizes,” Saunders said.
Although the company continues to face headwinds, including inflation-driven consumer caution, its strategic shifts and international momentum suggest a resilient outlook. With ongoing efforts to refine its product offerings and capture new markets, Lululemon remains a formidable player in the athletic apparel industry.
