Lululemon Sees 18 Percent Leap in Profits and Sales

Lululemon Athletica Inc. posted solid second-quarter earnings and revenue gains, as the active lifestyle brand transcends generally weak trends across apparel retailing.

On Thursday, Lululemon posted a second-quarter net profit of $341.6 million, an 18 percent jump from the $289.5 million reported in the year-ago quarter.

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Diluted earnings per share were $2.68, compared to $2.26 in the second quarter of 2022. Adjusted diluted EPS were $2.20 in the second quarter of 2022.

In the quarter ended July 30, net revenue also increased 18 percent to $2.2 billion, or 20 percent on a constant dollar basis.

The brand is being powered by product innovation and international expansion particularly in China, as well as lower air freight expenses and high full-price penetration of sales.

To perpetuate the growth, the company sees opportunities to gain brand awareness globally; further growth internationally, which contributes 23 percent of total volume but potentially could be 50 percent; expanding high-traffic store locations, and continued product innovation. At the end of last quarter, Lululemon had 672 stores accounting for 60 percent of revenues, while digital accounted for 40 percent.

Calvin McDonald, chief executive officer, cited the brand’s “steady drumbeat of product, category and market expansions” during his conference call with industry analysts Thursday. “Heading into the third quarter, there is really no change to that formula.…The speed of innovation, the pipeline and launches within each quarter continue to get very strong.”

There are plans for the launch of men’s footwear next year, a new women’s collection this fall, and later in this quarter, an expanded array of outerwear vests, jackets and down items.

In China, there’s 107 stores, though the company sees potential for 200 stores. Though the China economy has been weak, executives said Lululemon didn’t experience any volatility there.

In his prepared statement, McDonald said, “Our Q2 results highlight the ongoing strength of the business amid a dynamic operating environment. I am proud of how our teams continue to deliver on our vision and offer an exciting pipeline of new products and experiences to our guests around the world. Our continued ability to gain market share and bring new customers into the brand illustrates the significant runway ahead for Lululemon.”

Meghan Frank, chief financial officer, stated, “Our performance remained strong in Q2 as both revenue and EPS exceeded our expectations. Our ongoing momentum is a reflection of our portfolio approach to growth, differentiated business model, and innovative product assortment. We are excited about our opportunities in the second half of the year and look forward to continuing to deliver on our Power of Three ×2 growth plan.”

For the third quarter of 2023, the company expects net revenue to be in the range of $2.17 billion to $2.19 billion, representing growth of 17 to 18 percent. Diluted EPS is expected to be in the range of $2.23 to $2.28 for the quarter. This assumes a tax rate of about 30.5 percent.

For 2023, the company expects net revenue to be in the range of $9.51 billion to $9.57 billion, representing growth of 17 to 18 percent. Diluted EPS is expected to be in the range of $12.02 to $12.17 for the year. This assumes a tax rate of about 30 percent.

The company’s Power of Three ×2 growth plan calls for a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, and market expansion. The growth strategy includes a plan to double men’s, double direct-to-consumer, and quadruple international net revenue relative to 2021.

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