Lululemon Athletica shares increased by roughly 9% in after-hours trading Thursday, as the company announced quarterly earnings and revenue that exceeded analysts’ estimates. U.S.-Canadian retailer reported better-than-expected results despite rising costs hurting garment sales at rival stores. The company also increased its annual projection.
Lululemon’s revenue for the quarter came in at $1.87 billion beating the consensus estimate of $1.774 billion, according to Refinitiv. Lululemon’s adjusted earnings per share (EPS) at $2.20, topping the consensus estimates of $1.87 per share.
The business said that both in-store and online visitation is still high. Same-store sales increased by 23%, above StreetAccount’s prediction of 17.6%, as net sales revenue increased 29% to $1.87 billion. The company also reports that store visitation surged by over 30% and e-commerce traffic increased by over 40%.
As other high-end shops like Macy’s and Nordstrom reduced their expectation for this quarter amid inflationary pressures, Lululemon has increased its projection for two straight quarters.
“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 multi-dimensional operating model,” CFO Meghan Frank said in a press statement.
Lululemon hopes to increase client loyalty even more in the future by implementing a membership program. The new program will feature a free tier and a premium tier that costs $39 a month. Subscribers to the paid tier receive an invitation to in-person activities as well as early access to product drops and unique products.
Moreover, Lululemon continues to grow its presence throughout the quarter by building new stores and opening 21 new online markets to a total of 600 stores.
In contrast to the same period the year before, inventories increased by 85% to $1.5 billion. As other retailers struggle with surplus items in their inventories, Lululemon expressed confidence that the inventory level will increase sales over the holiday shopping season.
Compared to the range of $7.610 billion to $7.710 billion it declared in the previous quarter, the business said it now anticipates 2022 sales of between $7.865 billion and $7.940 billion. Additionally, the firm increased its forecast for adjusted earnings per share from a range of $9.35 to $9.50 adjusted to a range of $9.75 to $9.90.
The company also reports that it will stick to its long-term outlook, which calls for tripling net sales to $12.5 billion between 2021 and 2026. When the strategy was first revealed in the spring, some experts expressed doubts about Lululemon’s capacity to meet the challenging long-term objective.
This comes after Jefferies analyst Randal Konik downgraded shares to “Sell” on the assumption that the retailer will be forced to modify its ambitious long-term outlook in the next quarters. Konik believes that Lululemon’s good second-quarter results were inflated by the popularity of the belt bag frenzy and downgrading underlines doubts about the retailer’s ability to meet ambitious long-term revenue targets.
“Inventories are bloated across retail (LULU included), promos are rising industry-wide, FX is not helping, and inflation isn’t going away. We are seeing more evidence of slowing spend across apparel and general merchandise. More importantly, we are witnessing slowing spending trends across low- and high-income demos broadly,” Konik wrote.
Konik also sees Lululemon’s intention to increase overseas income by fourfold between 2021 and 2026 as unrealistic, given the fact China is amid pandemic-related lockdowns and due to macroeconomic difficulties across Europe.
“It’s clear macro issues are more severe across Europe and in Asia than in the U.S., which could pressure LULU’s ability to meet lofty projections,” Konik added.
Summary
Lululemon athletica shares are trading higher this week after the retailer reported a very strong set of results that impressed analysts, and which could prove Jefferies analyst Randal Konik wrong just days after he cut the rating to Sell.
