Lululemon (LULU) Q1 2023 Earnings
Lululemon on Thursday reported earnings that beat Wall Street’s sales and earnings estimates and raised its full-year guidance, supported by improvements in China and in freight costs.
The company’s shares rose more than 12% in extended trading.
Here’s how the retailer fared in the fiscal first quarter versus Wall Street expectations, based on a survey of analysts compiled by Refinitiv:
- Earnings per share: $2.28 versus $1.98 expected
- Revenue: $2 billion versus $1.93 billion expected
The company’s reported net income for the three-month period ended April 30 was $290.4 million, or $2.28 per share, compared to $190 million, or $1.48 per share last year.
Revenue rose 24% to $2 billion from $1.61 billion a year earlier.
Sales in China alone rose 79% compared to the same period last year, when the country was still suffering from Covid restrictions and about a third of Lululemon’s 71 China stores were temporarily closed.
“Our Q1 results were strong as guests responded well to our product offering in all of our markets around the world. A significant acceleration in our sales trend in China, coupled with reduced air freight, contributed to our better than planned financial performance,” CFO Meghan said in a statement to Frank. “We are pleased with our momentum for the second quarter and for the full year, as reflected in our revised FY23 outlook.”
According to Refinitiv, the retailer now expects full-year sales of $9.44 billion to $9.51 billion, up from the previous range of $9.31 billion to $9.41 billion and beating Wall Street forecasts of 9 surpasses $.37 billion. Full-year earnings per share are expected to be in the range of $11.74 to $11.94, compared to a previous range of $11.50 to $11.72. It also beat analysts’ expectations, which forecast $11.61 per share, according to Refinitiv.
Lululemon expects its second-quarter revenue to be between $2.14 billion and $2.17 billion, up about 15%. Lululemon expects diluted earnings per share to be between $2.47 and $2.52 for the period. According to Refinitiv, that forecast for the second quarter was broadly in line with Wall Street’s expectations.
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Lululemon shares higher in extended trading after a strong earnings report.
The apparel retailer, which sells premium yoga pants, shoes and other athleisure apparel, reported a 24% year-over-year increase in sales, even as it trailed strong comparisons in the year-ago period, which came in a weaker macroeconomic backdrop.
This time last year, Lululemon had just raised its prices, but shoppers were still flocking to stores and filling their digital shopping carts. And they haven’t yet felt the pressure of ongoing inflation.
According to StreetAccount, total comparable sales, which capture digital sales and sales from stores open 12 months or more, grew 14% in the quarter, underperforming estimates of 15.1%.
While comparable-store sales for the most recent quarter beat expectations, rising 13% while StreetAccount projects growth of 8.3%, direct-to-consumer sales underperformed forecasts, rising 16% year-on-year, compared to 22 .3% According to StreetAccount, analysts had expected a % rise.
While DTC revenue was up year over year, it accounted for 42% of total revenue, compared to 45% in the prior-year period.
Gross margins increased 3.6 percentage points to 57.5% for the quarter, driven by a reduction in air freight costs. That was above the 56.7% expected by analysts, according to StreetAccount.
By category, women’s sales were up 22%, men’s sales were up 17% and accessories sales were up 67%.
Inventory, which is an ongoing concern for Lululemon, rose 24% to $1.58 billion at the end of the quarter and is expected to rise 20% in the next quarter. During a conference call on the results, company executives insisted inventory levels match sales growth and said they were “pleased” with the situation.
Still, they admitted that Lululemon still has work to do.
“We will still have opportunities to get hold of our stock [turnover rates] back to historical levels. “We’ve seen some significant improvements in supply chain and delivery times, but haven’t quite returned to historical positioning,” Frank said during the earnings call. “So it’s still too early to tell when we’ll get back to those levels, but that would be the longer-term goal.”
The company expects to open 50 new company-owned stores net in the fiscal year. 30 to 35 of these will be in international markets, with the majority planned for China.
While the company primarily targets higher-income consumers, who tend to be more resilient to macroeconomic pressures, retailers across the industry have seen a decline in discretionary spending and higher-priced items.
During Nordstrom’s earnings call Wednesday night, executives noted that the high-end customer was “fairly resilient,” but they also became more cautious.
Meanwhile, Lululemon said it hasn’t noticed any changes in its customers’ shopping habits.
“As far as our guest metrics go, they continue to be very strong. We saw no change in our cohort’s behavior, either in terms of purchase frequency or engagement,” said CEO Calvin McDonald. “Additionally, in the first quarter, existing guest transactions increased 22% and our new guest transactions increased 28%.”
During the current earnings season, some analysts have warned that retailers of textiles, or those that sell items like clothing and shoes, could see margins shrink due to increased promotional activity and a general slowdown across the industry.
Results on this front have been mixed so far.
Many retailers benefited from tailwinds in the supply chain, such as lower freight costs, which increased their margins. But for some, much of that savings has disappeared, due in part to increased promotions and rising shrinkage.
That was true Foot Lockerbut others in the category, including gap And Urban Outfitterswon promotions and saw the benefits to their margins.
Last month, CNBC reported that Lululemon intends to sell its home fitness business, Mirror, and has approached competitor Hydrow as a potential buyer.
The company announced it would acquire Mirror for $500 million at the height of the home fitness boom in June 2020 in a bet that people would continue to exercise at home even after the coronavirus pandemic restrictions ended and the reopening of gyms.
The segment has since been renamed Lululemon Studio, but it’s weighing on its balance sheet.
In the previous fiscal quarter, the company announced that it had taken $443 million in impairments related to Mirror and told investors that hardware sales had fallen short of expectations.
Lululemon acknowledged that the home fitness market is under pressure.
Much like Peloton, Lululemon has begun to shift the segment away from just a hardware focus.
The company recently launched a new digital app for Lululemon Studio, which costs the same as Peloton’s starting membership at $12.99 per month and gives customers access to its fitness classes without having to buy any hardware.