Lululemon Athletica (LULU 0.22%), known for its athletic and yoga apparel, released its fiscal third-quarter earnings on Dec. 5. In the period, which ended Oct. 27, revenue reached $2.397 billion, surpassing the $2.357 billion analyst prediction, and earnings per share (EPS) rose 46.4% year over year to $2.87, beating expectations of $2.71.
| Metric | Fiscal Q3 2024 | Fiscal Q3 2024 Analysts' Estimate | Fiscal Q3 2023 | % Change YOY |
|---|---|---|---|---|
| EPS (diluted) | $2.87 | $2.71 | $1.96 | 46.4% |
| Revenue | $2.397 billion | $2.357 billion | $2.204 billion | 8.7% |
| Operating margin | 20.5% | N/A | 15.3% | 520 basis points |
Source: Analysts' estimates provided by FactSet.
Company Overview and Strategic Focus
Lululemon Athletica, renowned for its performance wear, continues to focus on product innovation, omnichannel strategies, and international expansion. Its success hinges on product differentiation, particularly through technically advanced fabrics and innovative designs. Lululemon's Power of Three x2 growth strategy plans include efforts to boost its international presence, expand its store base, and enhance digital-platform integration. The company is also focused on managing its supply chain effectively, which will be crucial for preventing overstock issues and maintaining operational efficiency.
Quarterly Highlights and Financial Achievements
The fiscal third quarter presented mixed results for Lululemon. Revenue and EPS exceeded both analyst expectations and the company's guidance. And its revenue in international markets rose by a robust 33%. However, the company saw softer sales performance in the Americas, where revenue grew by just 2%. That stagnation in its domestic market, particularly in combination with a 2% decline there in comparable sales, remains a concern for Lululemon.
From a financial perspective, gross profit increased by 12% year over year to $1.402 billion, with gross margins rising to 58.5%, exceeding management's target. Operating margins also improved by 5.2 percentage points. Net cash from operations saw a significant boost.
Notable during the quarter were strategic initiatives that reinforced Lululemon's market positions, such as opening new stores, a significant acquisition in Mexico, and enhancements to its omnichannel offerings. A focus on growing brand awareness, particularly in burgeoning international markets such as China, helped support these strategic efforts.
Lululemon reported a moderate 8% increase in inventory levels, suggesting that it will need to be vigilant in its demand forecasting. Effective inventory management is paramount for apparel retailers, especially in the context of fluctuating regional sales conditions.
Looking Ahead
Management provided optimistic guidance for the fourth quarter, anticipating revenue of $3.475 billion to $3.510 billion, translating to 8% to 10% growth. This outlook encapsulates a robust international expansion plan counterbalancing domestic headwinds. For fiscal 2024, it revised its revenue target upward slightly revised to a range of $10.452 billion to $10.487 billion.
Investors should monitor Lululemon's ongoing efforts to innovate product offerings and improve its market-facing strategies, particularly as it seeks to recover momentum in the Americas. With the holiday season underway, focus will also intensify on its sales performance and inventory management.
