ADVERTISEMENT

Business

Lululemon Surges Most Since 2018 on Rebounding Performance

Zachary Warring, equity research analyst of CFRA, explains what he's looking out for in Lululemon's fourth quarter earnings.

(Bloomberg) -- Lululemon Athletica Inc. shares posted their biggest one-day gain since 2018 on optimism the upscale activewear brand is overcoming competition and cautious consumers. 

The stock jumped 16% on Friday, bringing Lululemon’s year-to-date decline to 22%. The stock is still poised for its worst full-year performance since 2013. The S&P 500 Index has advanced 28% this year. 

Friday’s gain was sparked by Lululemon’s strong quarterly report on Thursday. The company edged up its full-year outlook on strong sales overseas. The company now sees between $10.45 billion and $10.49 billion in revenue for its current fiscal year, up from a prior range of $10.38 billion to $10.48 billion. 

Comparable sales grew 4% in the third quarter, breaking a string of three straight quarters in which growth had slowed. Sales at stores open at least a year rose 25% in international markets and declined 2% in the Americas. 

Chief Executive Officer Calvin McDonald is betting the company can reignite demand, in part by expanding its assortment and embracing baggier styles. The company’s strategic plan targets annual revenue of $12.5 billion by 2026, fueled by rapid international growth, expanded online sales and more products for men.

The retailer also nudged up its guidance for earnings for the year to as much as $14.16 a share, 1 cent higher than the chain’s previous guidance.

Lululemon is “showing impressive agility to guardrail profitability,” Piper Sandler analyst Anna Andreeva wrote in a research note. Highlights include strength in its mature leggings business for the first time in a while, she said. 

Despite softness in the US, McDonald told analysts on Thursday that the company has an opportunity to grow there by adding new products. Momentum is strong in all of the company’s international markets, he added.

 

Overall, revenue in the quarter ended Oct. 27 rose 9% to $2.4 billion, above estimates, while in China, sales rose 39%. Gross margin of 58.5% also surpassed expectations.

“This was a very solid quarter,” Neil Saunders, managing director at GlobalData, wrote in a research note. “It is also one that delivers a dose of relief in that the deceleration in growth that has taken hold for the past three quarters has been reversed.”

Bucking Trends 

Saunders added that the quarter “was not a particularly strong one for apparel in general, so Lululemon has bucked prevailing trends.” 

The company, which pioneered the athleisure category, has attracted a number of rivals which are now offering products such as yoga pants at lower prices. 

Randal Konik, an analyst with Jefferies, wrote in a research note that growth may be harder to come by in the coming quarters while consumers remain squeezed by inflation. 

“We expect the company’s US business to continue to underperform as macro pressures weigh on the consumer, competition continues to increase and fashion shifts further away” from Lululemon’s core offering, he wrote. 

--With assistance from Kim Bhasin and Katrina Compoli.

©2024 Bloomberg L.P.