Despite a slowdown in U.S. growth, athleisure retailer Lululemon has reported strong sales, particularly in international markets such as China, leading to a 9% year-on-year increase in revenue. This has resulted in a notable surge in its share price, which has risen by a quarter this month, though the company remains nearly 21% down year-to-date. After a series of missteps earlier this year, Lululemon seems to have regained its momentum.
For the quarter ending October 27, Lululemon exceeded Wall Street expectations, reporting revenues of $2.4 billion, surpassing the anticipated $2.36 billion. Net income also saw significant growth, reaching $352 million compared to $249 million in the same period last year. While the company’s U.S. market continues to see slower sales growth, international markets, especially in Asia, have become key drivers of its success.
Looking ahead to the crucial holiday season, Lululemon has projected revenue between $3.48 billion and $3.51 billion, reflecting an 8-10% increase from the previous year, in line with analyst expectations. However, CEO Calvin McDonald remained cautious, emphasizing the uncertainty surrounding the remainder of the holiday shopping season.
“While we feel good about the start of the holiday season, we still have large volume weeks ahead. Given the shorter shopping season, we continue to plan thoughtfully for the fourth quarter,” McDonald stated during an earnings call.
Lululemon’s cautious stance is understandable, given the increasingly competitive landscape. Brands like Vuori, Alo Yoga, and Gymshark, which is expanding its U.S. operations, are challenging Lululemon’s dominance. Moreover, earlier this year, Lululemon faced supply chain issues that hindered sales, particularly in the U.S. when key product launches lacked the desired color and size options. McDonald acknowledged that the brand’s women’s business had slowed, partly due to insufficient new styles.
However, Lululemon’s focus on China has proven fruitful. Comparable sales grew by 4% company-wide, with a 2% decline in the U.S. but a remarkable 25% increase internationally. Sales in the Americas grew by 2%, while international sales soared by 33%. While international growth is encouraging, the Americas remain Lululemon’s largest market, and long-term success will depend on sustaining this momentum.
“Our teams have been agile in responding to seasonal colors, prints, and patterns,” McDonald said, noting that these efforts have helped improve product offerings in the latter half of the year. “We continue to see significant potential for growth in the U.S.”
In an effort to boost investor confidence, Lululemon has approved a $1 billion increase to its stock repurchase program, with approximately $1.8 billion remaining. Despite challenges, Lululemon appears well-positioned for a strong holiday season, even if its CEO remains cautiously optimistic.
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