Lululemon: EPS Beats, Revenue Misses

Specialist in sportswear Lululemon Athletica (LULU 0.07%) reported mixed results for the second quarter on Thursday. Earnings per share (EPS) beat analyst consensus expectations, but revenue missed slightly. This reflects steady growth but highlights areas for potential improvement in revenue generation.

The quarter was marked by robust international growth and improved margins, but growth in the Americas lagged. Overall, the quarter showed strong profitability gains and considerable progress in international markets, offset by some sales growth concerns.

Source: Lululemon Athletica. Note: Analyst estimates for the quarter provided by FactSet. YOY = Year Over Year. EPS = earnings per share. bps = basis points.

Business overview and strategic focus

Lululemon Athletica specializes in athletic apparel, footwear and accessories. Established in 1998, it prides itself on product innovation driven by technically advanced fabrics and functional design. The company’s omnichannel retail strategy blends physical and digital retail experiences with 721 stores globally. Recent key strategies focus on product innovation, international expansion and brand building, essential for competitive differentiation.

Second quarter performance

Second quarter earnings provided a mixed but promising outlook. Here are the main highlights.

Robust international growth: Revenue from international markets grew 29% year over year (31% on a constant currency basis). China contributed significantly, highlighting the company’s strategic focus on accessing growth markets. This geographic diversification is vital to reducing reliance on the slowing North American region. Revenue in the Americas grew just 1% year-over-year, underscoring the need for renewed strategies in this mature market.

Improved margins and profitability: Gross profit increased 9% year-over-year to $1.4 billion, benefiting from an improved gross margin of 59.6%, up 80 basis points. Operating margins also saw a robust improvement, reaching 22.8% (compared to 21.7% in the previous year). This performance indicates effective cost management and pricing strategies.

Product and supply chain development: The company did not introduce any new major product categories this quarter, but continues to emphasize high-quality, technically advanced fabrics in its existing product lines. Inventory levels decreased by 14%, which means efficient inventory management.

Focus on the future

Management’s financial perspectives: Lululemon presented a positive outlook for the remainder of fiscal 2024. For Q3, net income is expected to be between $2.34 billion and $2.365 billion, representing growth of 6% to 7%. Diluted EPS is expected to fall between $2.68 and $2.73.

The company now expects annual revenue between $10.375 billion and $10.475 billion, down $325 million from its estimate three months ago. Full-year diluted EPS guidance is set at $13.95 to $14.15, representing a reduction of $0.32 per share compared to three months ago.

Key areas to watch: Investors should pay close attention to Lululemon’s strategies to reignite growth in the Americas, especially as international markets continue to outperform. The company’s ability to innovate and introduce trending product lines will be crucial. In addition, its omnichannel strategy, which includes both physical retail and digital platforms, offers unique opportunities for revenue diversification. Effective inventory and supply chain management will remain critical to maintaining high profit margins.