LULULEMON Athletica shares posted their biggest one-day gain since 2018 on optimism the upscale activewear brand is overcoming competition and cautious consumers.
The stock jumped 16 per cent on Friday (Dec 6), bringing Lululemon’s year-to-date decline to 22 per cent. The stock is still poised for its worst full-year performance since 2013. The S&P 500 Index has advanced 28 per cent this year.
Friday’s gain was sparked by Lululemon’s strong quarterly report on Thursday. The company edged up its full-year outlook on strong sales overseas. The company now sees between US$10.45 billion and US$10.49 billion in revenue for its current fiscal year, up from a prior range of US$10.38 billion to US$10.48 billion.
Comparable sales grew 4 per cent in the third quarter, breaking a string of three straight quarters in which growth had slowed. Sales at stores open at least a year rose 25 per cent in international markets and declined 2 per cent in the Americas.
Chief executive officer Calvin McDonald is betting the company can reignite demand, in part by expanding its assortment and embracing baggier styles. The company’s strategic plan targets annual revenue of US$12.5 billion by 2026, fuelled by rapid international growth, expanded online sales and more products for men.
The retailer also nudged up its guidance for earnings for the year to as much as US$14.16 a share, one US cent higher than the chain’s previous guidance.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Lululemon is “showing impressive agility to guardrail profitability”, Piper Sandler analyst Anna Andreeva wrote in a research note. Highlights include strength in its mature leggings business for the first time in a while, she said.
Despite softness in the US, McDonald told analysts on Thursday that the company has an opportunity to grow there by adding new products. Momentum is strong in all of the company’s international markets, he added.
Overall, revenue in the quarter ended Oct 27 rose 9 per cent to US$2.4 billion, above estimates, while in China, sales rose 39 per cent. Gross margin of 58.5 per cent also surpassed expectations.
“This was a very solid quarter,” Neil Saunders, managing director at GlobalData, wrote in a research note. “It is also one that delivers a dose of relief in that the deceleration in growth that has taken hold for the past three quarters has been reversed.”
Bucking trends
Saunders added that the quarter “was not a particularly strong one for apparel in general, so Lululemon has bucked prevailing trends”.
The company, which pioneered the athleisure category, has attracted a number of rivals which are now offering products such as yoga pants at lower prices.
Randal Konik, an analyst with Jefferies, wrote in a research note that growth may be harder to come by in the coming quarters while consumers remain squeezed by inflation.
“We expect the company’s US business to continue to underperform as macro pressures weigh on the consumer, competition continues to increase and fashion shifts further away” from Lululemon’s core offering, he wrote. BLOOMBERG
