Lululemon Reports Strong Third-Quarter Demand but Gives Tepid Fourth-Quarter Outlook
Lululemon, the popular athletic apparel retailer, announced on Thursday that it experienced strong demand in the third quarter and a positive start to the holiday shopping season. However, despite these positive results, the company’s shares fell in extended trading due to its tepid fourth-quarter outlook.
Third Quarter Performance
In its third fiscal quarter, Lululemon reported adjusted earnings per share of $2.53, surpassing Wall Street’s expectations of $2.28. The company’s revenue reached $2.20 billion, slightly higher than the expected $2.19 billion.
Net income for the quarter was $249 million, or $1.96 per share, compared to $255 million, or $2 per share, in the same period last year. Excluding one-time items, Lululemon’s earnings per share were $2.53.
Sales for the quarter rose to $2.2 billion, a 19% increase from $1.86 billion in the previous year. The company experienced a 12% sales growth in North America and a significant 49% growth internationally.
Fourth Quarter Outlook
Despite the strong performance in the third quarter, Lululemon’s holiday guidance fell short of expectations. The company expects sales to be between $3.14 billion and $3.17 billion for the fourth quarter, lower than the anticipated $3.18 billion. Earnings are projected to be between $4.85 and $4.93 per share, compared to estimates of $4.80 to $5.19.
For the full year, Lululemon forecasts sales to be between $9.55 billion and $9.58 billion, exceeding the estimated range of $8.11 billion to $9.90 billion.
Finance chief Meghan Frank acknowledged the uncertainties in the macro environment and emphasized the need to plan for multiple scenarios.
Impact of the Holiday Season
CEO Calvin McDonald highlighted the success of Black Friday, which he described as the “single biggest day” in Lululemon’s history. The company is encouraged by the positive trends observed at the start of the holiday season and is confident in its ability to deliver strong results in the fourth quarter.
During the third quarter, Lululemon’s total comparable sales increased by 13%, surpassing analysts’ expectations of a 12.4% growth. However, comparable sales at the retailer’s stores were slightly lower than anticipated, coming in at 9% instead of the expected 11.7%. On the other hand, comparable direct-to-consumer sales spiked by 18%, exceeding analysts’ expectations of 16.9% growth.
Impairment Charges and Partnership with Peloton
Lululemon incurred $72.1 million in impairment charges related to Mirror, a connected fitness company it acquired for $500 million during the Covid-19 pandemic. As part of a new partnership with former rival Peloton, Lululemon will no longer sell the Mirror device or produce content for its Studio app. Instead, Peloton will provide all the content for Lululemon’s app, and Lululemon will become Peloton’s primary athletic apparel partner.
Despite the positive performance and strategic partnerships, Lululemon’s shares fell approximately 3% in extended trading.
Overall, Lululemon remains optimistic about its future prospects and is well-positioned to capitalize on the significant opportunities ahead.
