The Vancouver, B.C.-based athletic apparel, accessories and footwear retailer revealed earnings after the market closed Thursday, improving on top and bottom lines and proving that at least some shoppers are still buying activewear in the era of inflation and return-to-office settings. Lululemon updated its full-year guidance as a result, causing company shares to rise more than 9 percent in after-hours trading.
“The momentum in our business continued in the second quarter, fueled by strong guest response to our product innovations, community activations and omni experience,” Calvin McDonald, Lululemon’s chief executive officer, said in a statement. “I would like to express my gratitude to our teams around the world for their continued dedication and enthusiasm for our brand, which enabled us to generate this elevated level of performance. As we look ahead, we’re excited about our ability to successfully deliver against our Power of Three ×2 growth plan and create ongoing value for all our stakeholders.”
Top-line revenues for the three-month period grew 29 percent to $1.9 billion, up from $1.45 billion a year ago. Net revenue rose 28 percent in North America and 35 percent internationally. Total comparable sales were also up 23 percent for the quarter, while comparable store sales increased 16 percent during the quarter, year-over-year. Direct-to-consumer net revenue — which represents 42 percent of total revenues — grew 30 percent during the same time frame.
Inventories for the quarter rose 85 percent to $1.5 billion, up from $800 million a year ago. But McDonald told analysts on Thursday afternoon’s call that this was actually a tailwind.
“If you remember, last year we were understocked in many of our core categories,” the CEO said.
The company logged $289 million in profits, compared with $208 million during last year’s second quarter.
Lululemon anticipates its current quarter net revenues to be in the range of $1.78 billion and $1.80 billion. That’s a three-year compound annual growth rate of about 25 percent. The company also expects current-quarter diluted earnings per share to be in the range of $1.90 to $1.95 apiece.
For the full year, Lululemon is anticipating net revenues in the range of $7.86 billion and $7.94 billion. Diluted earnings per share are expected to be in the range of $9.82 and $9.97 for the year.
“Our teams continue to execute at a high level, which is driving our strong financial and business performance,” said Lululemon’s chief financial officer Meghan Frank. “Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multidimensional operating model. I am pleased with our start to the third quarter and believe we are well positioned for the fall and holiday seasons.”
While retailers throughout the industry are dealing with rapidly changing consumer shopping patterns, McDonald said on the call that Lululemon is “not seeing any variation in our cohort’s behavior.” He added that hasn’t increased promotional activity either. “And we have no plans to do so,” McDonald said.
During the pandemic, Lululemon has expanded its assortment to include footwear, as well as golf and tennis apparel, hiking gear, workout hijabs, mushroom bags and the launch of last year’s Like New resale program. Lululemon is also the official outfitter of Team Canada (a role it will retain through 2028).
In addition, the retailer has also added accessories, such as dumbbells and ankle weights to its Mirror business. (Lululemon purchased the at-home fitness system in June 2020 for $500 million.) The firm said last December that Mirror could be a potential headwind, amid continued supply chain issues and as at-home fitness slows down with the return to both offices and in-person gyms. At Lululemon’s Investor Day in April, the company said it would no longer separate Mirror revenues from total company revenues during earnings reports. (By contrast, rival at-home fitness system Peloton lost more than $1 billion in its most recent quarter.)
During the quarter, Lululemon also opened stores in Spain and launched on JD.com. McDonald said the launch on the Chinese platform, “which skews more toward men,” is helping grow both the men’s business and overall business in China. In the last quarter, revenues in China increased 30 percent, year-over-year.
The retailer ended the quarter with 600 stores and nearly $499 million in cash and cash equivalents. The capacity under the company’s committed revolving credit facility was roughly $395 million.
Shares of Lululemon, which closed down 1.84 percent Thursday to $294.45, are down more than 24 percent, year-over-year.