What’s fueling Lululemon’s stock growth: Global sales or something bigger?

Lululemon Athletica Inc. reported a 9% revenue increase for Q3 2024, driven by strong international growth, especially in China. The athletic apparel retailer’s total revenue reached $2.4 billion, marking a notable advancement despite challenges in the U.S. market.

Lululemon reports 9% revenue growth in Q3 2024

Lululemon’s unaudited results indicated adjusted earnings per share (EPS) rose 13% to $2.87 per diluted share. The company’s international revenue surged by 33%, or 30% in constant currency, markedly supported by a significant 39% increase in China Mainland revenue. Comparatively, revenue in the Americas grew only 2%, reflecting stagnation in the domestic market. Despite modest gains in the Americas, Lululemon’s men’s revenue grew by 9%, while the women’s and accessories segments each saw an 8% increase.

Gross margin ticked up by 40 basis points, landing at 58.5%, which was better than analysts had predicted. However, selling, general, and administrative expenses comprised 38% of net revenue, slightly exceeding previously set guidance due to adverse foreign exchange impacts. Lululemon’s net income for the period totaled $352 million.

Lululemon faces an uncertain macroeconomic landscape that could influence future performance. The company anticipates a decrease in operating margin for the full year 2024, indicating potential pressures on costs. Lululemon expects inventory levels to rise in the mid-teens by Q4, posing risks should sales fall short of expectations. The company also referenced the emerging challenges of a highly promotional retail environment that may impact pricing strategies.

During the earnings call, CEO Calvin McDonald reiterated the company’s commitment to its growth strategy. “US sales performance met our expectations, and we are seeing sequentially stronger newness in Q4,” he stated, highlighting continued investment in customer engagement and product innovation.

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Share repurchase program and store expansion plans

Lululemon expanded its share repurchase program by $1 billion, bringing the total available to approximately $1.8 billion. Lululemon is confident in its long-term potential. The company also boasts a growing membership base, having reached 24 million members, which enhances customer loyalty.

Lululemon plans to expand its international footprint further with new store openings in Italy and other countries under a franchise model. This initiative reflects the company’s strategy to tap into global markets while navigating slower growth domestically. Despite its well-documented challenges, Lululemon remains the dominant player in the athletic apparel segment, and its leadership has expressed optimism about its product line, especially as recent offerings have been positively received.

While the competitive landscape grows increasingly intense with rising challengers such as Vuori and Alo Yoga, Lululemon continues to adapt its strategies. The departure of Sun Choe, the former chief product officer, prompted a restructuring within the product division aimed at improving efficiency and responsiveness.

Outlook and market dynamics

As Lululemon prepares for the crucial holiday shopping season, it has set a revenue expectation of between $3.48 billion and $3.51 billion for Q4, indicating growth of 8% to 10% from the previous year. Analysts predict revenues around $3.50 billion, aligning comprehensively with the company’s guidance. EPS expectations for this period range between $5.56 and $5.64, potentially surpassing analyst forecasts.

The current retail environment presents both risks and opportunities. Lululemon’s cautious strategies come amid shifting consumer behaviors driven by persistent inflation and changes in spending patterns. Despite struggles with a recent product launch and challenges maintaining stock of desirable sizes and colors, analysts note improvements in product engagement following rapid adjustments in inventory management.

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Featured image credit: Lululemon