lululemonAlthough its U.S. growth continues to slow, the sports apparel retailer has made significant profits overseas, with sales up 9% year-over-year.
The yoga pants company beat Wall Street expectations on Thursday on sales and bottom line profits. He said he was “happy” with the start of the holiday season. Still, Chief Executive Officer Calvin McDonald struck a cautious tone about the company’s fourth-quarter outlook on a conference call with analysts.
“We’re happy with the start of the holiday season, but we still have a big trading week ahead,” McDonald said. “Given the short holiday shopping season, we continue to proceed cautiously with our plans for the entire fourth quarter.”
Here’s how Lululemon’s fiscal third-quarter results compare to Wall Street expectations, based on a survey of analysts by LSEG.
- Earnings per share: $2.87 vs. $2.69 expected
- Revenue: $2.40 billion vs. expected $2.36 billion
Shares rose about 8% in extended trading Thursday.
The company reported net income of $352 million, or $2.87 per share, for the three months ended Oct. 27, compared with $249 million, or $1.96 per share, in the year-ago period.
Sales were $2.4 billion, an increase of approximately 9% from $2.2 billion in the same period last year.
For the all-important holiday shopping quarter, Lululemon expects sales to be between $3.48 billion and $3.51 billion, representing 8% to 10% year-over-year growth. Analysts expect sales to grow $3.5 billion, or 9.1%, roughly in line with the midpoint of guidance, according to LSEG.
LSEG said it expects earnings per share to be between $5.56 and $5.64, above analysts’ expectations of $5.59.
Finance chief Megan Frank said on a call with analysts that the company is planning its business “carefully” given the shortened holiday season and “uncertain macro environment.”
For the full year, Lululemon tightened its earnings outlook and raised it only slightly. The company currently expects fiscal 2024 revenue to be between $10.45 billion and $10.49 billion, compared with previous guidance of between $10.38 billion and $10.48 billion. Ta. LSG said the outlook would exceed the $10.44 billion that Wall Street had expected.
The company expects earnings per share to be between $14.08 and $14.16, beating analysts’ expectations of $13.97.
Lululemon fell on hard times last year. It continues to grow, but at a slower pace and in a more competitive environment. Lululemon has always competed with traditional giants such as: nike, gap’Athleta and LeviBeyond Yoga, but new disruptors such as Vuori and Alo Yoga are also taking market share from Canadian retailers.
The company is looking to China for growth, and so far sales have increased across the business. According to StreetAccount, companywide comparable sales rose 4% in the quarter, beating Wall Street’s expectations for 3.2% growth.
This figure comes as comparable sales in the U.S. have slowed by 2%, while internationally they have increased by 25%. Overall revenue for the quarter increased 2% in the Americas and 33% internationally. Still, the Americas remains Lululemon’s largest market, and international markets still only account for a small portion of its overall revenue.
Lululemon also had some challenges of its own. The company failed to launch a high-profile product earlier this year, missing out on sales in the U.S. after failing to offer the colors and sizes its key customers wanted.
When the company announced its results in August, McDonald’s said the brand remained strong in the U.S., but that its women’s business was slowing because there weren’t enough new styles to attract customers.
All of these issues coincide with the departure of Sun Choe, Lululemon’s longtime head of product. Sun Choe resigned and joined the company in May. VF Corporation. Following her departure, McDonald’s announced a new reporting structure for its product division, merging Lululemon’s brand and merchandising teams under chief brand and product activation officer Nikki Neuberger. McDonald’s said the new structure will improve the company’s efficiency and it is “on track” to ramp up new product releases in time for the spring shopping season.
“Our team has been nimble and pursued seasonal colors, prints and patterns, and I think we’ve seen several examples across our major franchises,” McDonald said. Ta. “Thanks to these efforts, we have gradually improved the freshness of our range in the second half of this year, and we continue to see strong growth potential in the United States.”
Neil Saunders, managing director at GlobalData, said in a note that Lululemon’s product struggles appear to be the reason.
“Throughout the third quarter, we felt that women’s products were fresh and interesting and had more than enough to capture shoppers’ attention,” the retail analyst said. “This improved conversion rates and average basket size. In our view, Lululemon deserves praise for making a quick course correction to emphasize being a merchant-led organization. I will.”
Lululemon’s struggles come at a time when consumers, reeling from persistent inflation and an economy that feels worse than it actually is, are more selective than ever and less forgiving when brands make mistakes.
In tough times, Lululemon turned to stock buybacks to keep Wall Street happy. This month, the company approved a $1 billion increase in its stock repurchase program. As of Thursday, about $1.8 billion remained in the program.
Lululemon is also focusing on improving profitability amid uncertain demand. According to Street Accounts, gross profit margin in the third quarter grew more than expected, increasing 1.5 points to 58.5%, beating analysts’ expectations of 57.5%.
