Lululemon Surpasses Forecasts, China Sales Boom

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Following the earnings announcement, Lululemon’s shares surged more than 10% in extended trading, buoyed by the company’s approval of a $1 billion increase to its stock repurchase program. Analysts noted that China remains a significant growth engine for Lululemon, where it enjoys a dominant position as a premium athleisure brand in a relatively less competitive market environment.

While Lululemon experienced a rare single-digit increase in comparable sales, particularly notable after years of double-digit growth, its performance in the Americas remained flat compared to the previous year. In contrast, same-store sales in China mainland soared by 26%, underscoring the importance of the company’s international expansion strategy.

Addressing recent challenges, CEO Calvin McDonald highlighted efforts to rectify issues related to out-of-stock items and enhance product offerings, particularly in color palette and popular items like leggings. These initiatives are expected to position Lululemon for stronger performance in the second half of 2024.

Lululemon’s results contrasted with a broader slowdown in consumer spending in North America, which has impacted other high-end apparel retailers like Ralph Lauren (RL.N) and Tapestry, parent company of Coach. Despite market headwinds, Lululemon’s focus on lean inventory management and strong full-price selling contributed to a gross margin increase of 20 basis points to 57.7%.

For the first quarter, Lululemon reported quarterly net revenue of $2.21 billion, slightly exceeding analysts’ average estimates. Similarly, its profit per share of $2.54 outperformed expectations. The company also provided an optimistic outlook, raising its fiscal 2024 earnings per share forecast and maintaining its net revenue guidance. With inventory decreasing by 15% to $1.3 billion, Lululemon remains well-positioned to navigate market challenges and capitalize on growth opportunities in the evolving retail landscape.