Lululemon reported earnings that beat Wall Street estimates in top and bottom earnings Thursday and raised its guidance for the full year, helped by improvements in China and shipping costs.
Shares of the company are up more than 12% in extended trading.
Here’s how the retailer fared in the fiscal first quarter compared to what Wall Street was expecting, based on a survey of analysts compiled by Refinitiv:
- Earnings per share: $2.28 vs. $1.98 expected
- he won: 2 billion dollars vs. $1.93 billion expected
The company’s reported net income for the three-month period ended April 30 was $290.4 million, or $2.28 per share, compared to $190 million, or $1.48 per share, a year earlier.
Sales increased 24% to $2 billion, compared to $1.61 billion a year ago.
China revenue alone grew 79% over the same period last year, when the country was still reeling from Covid restrictions and nearly a third of Lululemon’s 71 Chinese stores were closed for a while.
“Our results in the first quarter were strong as guests responded well to our product offerings in all of our markets around the world. A significant acceleration in our sales trend in China, coupled with lower air freight, contributed to a better-than-planned financial performance,” Chief Financial Officer Megan Frank said in a statement. “We are pleased with our momentum going into the second quarter and for the full year as evidenced by our revised outlook for fiscal ’23.”
The retailer now expects to see full-year revenue of $9.44 billion to $9.51 billion, up from the previous range of $9.31 billion and $9.41 billion, beating Wall Street’s forecast of $9.37 billion, according to Refinitiv. It expects full-year earnings of $11.74 to $11.94 per share, compared to an earlier range of $11.50 to $11.72. That also beat analyst expectations, which called for $11.61 per share, according to Refinitiv.
Lululemon expects second-quarter sales to be in the range of $2.14 billion to $2.17 billion, representing growth of about 15%. Lululemon expects diluted earnings per share to be in the range of $2.47 to $2.52 for the period. Second-quarter guidance was largely in line with Wall Street’s expectations, according to Refinitiv.
Lululemon shares rose in extended trade after a strong quarterly report.
The apparel retailer, which sells high-end yoga pants, shoes and other activewear, saw a 24% year-over-year increase in sales, although it posted solid comparisons to the year-ago period, which came during an easier macroeconomic backdrop.
This time last year, Lululemon just raised its prices, but shoppers are still flocking to its stores and filling their digital carts. They have not yet felt the pressure of persistent inflation.
Total Similar Sales, which tracks revenue and digital sales in stores open for at least 12 months, rose 14% in the quarter, missing estimates of 15.1%, according to StreetAccount.
While comparable-store sales outperformed expectations last quarter – jumping 13%, compared to StreetAccount’s estimate for growth of 8.3% – direct-to-consumer revenue fell short of expectations, increasing 16% from the year-ago period. , compared to the 22.3 percent jump analysts expected, according to StreetAccount.
And while DTC’s revenue increased year over year, it accounted for 42% of total sales, compared to 45% in the year-ago period.
Gross margins in the third quarter increased 3.6 percentage points to 57.5%, driven by lower air freight expenses. This was higher than the profit margins of 56.7% that analysts had expected, according to StreetAccount.
By category, women’s sales were up 22%, men’s sales were up 17% and accessories were up 67%.
The inventory, which was an ongoing release for Lululemon, rose 24% to $1.58 billion at the end of the quarter and is expected to rise 20% next quarter. During the earnings call, company executives insisted its inventories were in line with sales growth, and said they were “comfortable” with its position.
However, they acknowledge that Lululemon has work to do.
“We will still have opportunities… to get our stock [turnover rates] Back to historical levels. “We’ve seen some material improvements in supply chain and lead times but not all the way back to the historical situation,” Frank said during the earnings call. That would be a long-term goal.”
The company expects to open 50 new company-operated stores in the fiscal year. 30 to 35 of the new doors will be in international markets, with the majority planned for China.
discretionary spending
While the company largely caters to higher-income consumers, who tend to fare better against macroeconomic pressures, retailers across the industry have cited declining discretionary spending and higher-ticket items.
During Nordstrom’s earnings call Wednesday night, executives noted that high-end customers are “very resilient,” but they’ve also become more cautious.
Meanwhile, Lululemon said it hasn’t seen any changes in its customers’ shopping habits.
“In terms of our guest metrics, they’ve remained very strong. We haven’t seen any change in our group behavior, in terms of frequency of purchase or engagement,” said CEO Calvin McDonald. “Additionally, in the first quarter, transactions by existing guests increased 22% and our transactions by new guests increased 28%.”
During this earnings season, some analysts warned soft-goods retailers, or those who sell items such as apparel and footwear, could see margins drop due to increased promotional activity and a general downturn across the sector.
Results so far have been mixed.
Many retailers have benefited from supply chain tailwinds, such as lower shipping costs, that have boosted their margins. But for some, a lot of those savings have evaporated due to increased promotions and a surge in deflation, among other headwinds.
This arrangement is correct for foot lockerbut others in the category, incl gap And Urban OutfittersThey were able to maintain the ranks in promotions and saw the benefits on their margins.
hardware
Last month, CNBC reported that Lululemon is looking to sell its home fitness business, and has reached out to competitor Hydrow as a potential buyer.
The company announced it would acquire Mirror for $500 million at its peak home fitness profitability in June 2020 in a bet that people will continue to exercise at home, even after the Covid pandemic restrictions end and gyms reopen.
The segment has since been rebranded as Lululemon Studio but has been weighing heavily on its balance sheet.
During the previous fiscal quarter, the company said it took $443 million in impairment charges related to Mirror and told investors that hardware sales came in below expectations.
Lululemon admitted that the home fitness market is under pressure.
Similar to Peloton, Lululemon is beginning to shift the segment away from focusing solely on hardware.
The company recently launched a new digital app for Lululemon Studio, which costs the same as a Peloton membership that starts at $12.99 per month and gives customers access to fitness classes without having to purchase its hardware.