Lululemon Athletic Inc. saw its shares increase by almost 9 percent yesterday after the company announced the strongest third-quarter fiscal performance on its way, helped by large international expansion offsetting slowing sales in the Canadian company’s biggest home market. Lululemon outperformed the Street as well, beating expectations to net $2.87 earnings per share compared to analyst estimates of $2.69. For the period under review, revenue improved to $2.40 billion by 9 percent in one year. That also easily bested estimates of $2.36 billion. With growth in the Americas easing, Lululemon notched a huge 25% increase in sales internationally, especially in China, which helped push the company forward.
For the holiday shopping quarter, the company predicted between $3.48 billion to $3.51 billion in revenue, showing projected growth of 8% to 10%, in line with expectations from analysts. Earnings per share are expected by the company to range from $5.56 to $5.64, which is barely above the consensus estimate that stands at $5.59. It is going to be careful planning in the shortened holiday shopping season, especially for the uncertain economic climate, says Meghan Frank, Lululemon’s finance chief.
While these are encouraging finds, Lululemon’s U.S. expansion has slowed, with comparable sales in the region falling 2%. However, it remains optimistic about its future prospects, citing the positive changes in its product mix and a return to strong demand in the U.S. following earlier mistakes, including a product launch failure and supply shortages of key styles. Chief executive Calvin McDonald said that the strategy was on track. Included is a new organizational structure implemented after longtime chief product officer Sun Choe quit the company in May.
The company also faces increased competition from newer entrants like Vuori and Alo Yoga that challenge its leadership in the athleisure market. To address this, Lululemon has continued to invest in product innovation and expanding its international presence, which is increasingly contributing to the overall revenue of the company. Gross margin for the quarter came in higher than expected at 58.5%, a 1.5 percentage point increase, indicating that the company’s operational efficiency is robust.
Apart from the earnings report, Lululemon publicly disclosed a US$1 billion uplift to the current stock buyback program, which reflects commitment to shareholder value. Its capacity to navigate its challenges while still capitalizing on international growth has placed it in a healthy position for a strong close into the fiscal year.
