Lululemon reported earnings that beat Wall Street’s estimates on the highest and bottom lines Thursday and raised its full-year guidance, bolstered by improvements in China and freight costs.
Shares of the corporate surged greater than 12% in prolonged trading.
Here’s how the retailer did in its fiscal first quarter compared with what Wall Street was anticipating, based on a survey of analysts compiled by Refinitiv:
- Earnings per share: $2.28 vs. $1.98 expected
- Revenue: $2 billion vs. $1.93 billion expected
The corporate’s reported net income for the three-month period that ended April 30 was $290.4 million, or $2.28 per share, compared with $190 million, or $1.48 per share, a 12 months earlier.Â
Sales rose 24% to $2 billion, up from $1.61 billion a 12 months earlier.
China revenue alone grew 79% from the year-ago period, when the country was still reeling from Covid restrictions and roughly one-third of Lululemon’s 71 China stores were closed for a time frame.
“Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our higher than planned financial performance,” CFO Meghan Frank said in a press release. “We’re pleased with our momentum heading into the second quarter and for the complete 12 months as reflected in our revised outlook for FY23.”
The retailer now expects to see full-year revenue of $9.44 billion to $9.51 billion, up from a previous range of $9.31 billion and $9.41 billion, and beating Wall Street’s projections of $9.37 billion, in keeping with Refinitiv. It expects full 12 months profits of $11.74 to $11.94 per share, compared with a previous range of $11.50 to $11.72. That also topped analysts’ expectations, which called for $11.61 per share, in keeping with Refinitiv.Â
Lululemon is expecting second-quarter sales to be within the range of $2.14 billion to $2.17 billion, representing growth of about 15%. Lululemon expects diluted earnings per share to be within the range of $2.47 to $2.52 for the period. That second-quarter guidance was largely consistent with Wall Street expectations, in keeping with Refinitiv.
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Lululemon shares surge in prolonged trading after a robust quarterly report.
The apparel retailer, which sells high-end yoga pants, shoes and other athletic wear, saw a 24% year-over-year increase in sales, whilst it lapped strong comparisons within the 12 months ago period, which got here during a better macroeconomic backdrop.
This time last 12 months, Lululemon had just raised its prices, but shoppers were still flocking to its stores and filling up their digital carts. And, they weren’t yet feeling the pressure of persistent inflation.
Total comparable sales, which tracks digital revenue and sales at stores open for a minimum of 12 months, were up 14% within the quarter, which fell wanting estimates of 15.1%, in keeping with StreetAccount.
While comparable store sales outperformed expectations in essentially the most recent quarter — jumping 13%, compared with StreetAccount estimates of 8.3% growth — direct-to-consumer revenue fell wanting projections, increasing 16% from the prior-year period, compared with the 22.3% jump analysts had expected, in keeping with StreetAccount.
While DTC revenue increased in comparison with last 12 months, it represented 42% of total sales, in comparison with 45% within the year-ago period.
Gross margins within the quarter increased 3.6 percentage points to 57.5%, driven by a discount in airfreight expenses. That was above the 56.7% margins analysts had been expecting, in keeping with StreetAccount.
By category, sales in women’s were up 22%, men’s were up 17% and accessories were up 67%.
Inventory, which has been an ongoing issue for Lululemon, was up 24% at $1.58 billion at the tip of the quarter and is anticipated to be up 20% in the subsequent quarter. During an earnings call, company executives insisted its inventories are consistent with sales growth and said they’re “comfortable” with its position.
Still, they acknowledged Lululemon has work to do.
“We’ll still have opportunities … to get our inventory [turnover rates] back to historical levels. We now have seen some material improvements in supply chain and lead times but not all the best way back to historical positioning,” said Frank through the earnings call. “So, too soon to say once we’ll move back to those levels, but that may be the goal over the long term.”
The corporate expects to open 50 net recent company-operated stores within the fiscal 12 months. Thirty to 35 of the brand new doors will likely be in international markets, with the bulk planned for China.
Discretionary spending
While the corporate largely caters to higher-income consumers, who are inclined to fare higher against macroeconomic pressure, retailers across the industry have cited a pullback in discretionary spending and higher-ticket items.Â
During Nordstrom’s earnings call Wednesday evening, executives noted the high-end customer is “pretty resilient” but they’ve also change into more cautious.
Meanwhile, Lululemon said it has seen no changes in its customers’ shopping habits.
“When it comes to our guests metrics, they’ve remained very strong. We have seen no change in our cohort behavior, when it comes to frequency of purchase or engagement,” said CEO Calvin McDonald. “As well as, in quarter one, transactions by existing guests increased 22% and our transactions by recent guests increased 28%.”
During this earnings season, some analysts cautioned soft goods retailers, or those who sell items comparable to clothes and shoes, could see a drop in margins due to increased promotional activity and an overall pullback across the sector.Â
The outcomes up to now have been mixed.
Many retailers have benefited from supply chain tailwinds, comparable to reduced freight costs, which have boosted their margins. But for some, a number of those savings evaporated due to increased promotions and upticks in shrink, amongst other headwinds.
That rang true for Foot Locker, but others within the category, including Gap and Urban Outfitters, were in a position to hold the road on promotions and saw advantages to their margins.Â
Hardware
Last month, CNBC reported Lululemon is seeking to sell its at-home fitness business Mirror and has approached competitor Hydrow as a possible buyer.
The corporate announced it might acquire Mirror for $500 million at the peak of the at-home fitness bonanza in June 2020 in a bet that folks would proceed to exercise at home, even after Covid pandemic restrictions ended and gymnasiums reopened.Â
The segment has since rebranded as Lululemon Studio but it surely has been weighing on its balance sheet.Â
During its previous fiscal quarter, the corporate said it took $443 million in impairment charges related to Mirror and told investors hardware sales have are available below expectations.Â
Lululemon acknowledged the at-home fitness market has been under pressure.
Just like Peloton, Lululemon has begun pivoting the segment away from being solely hardware-focused.
Recently, the corporate launched a recent digital app for Lululemon Studio, which costs similar to Peloton’s starting membership at $12.99 a month and provides customers access to its fitness classes without the necessity to buy its hardware.