Lululemon says third quarter off to “solid start” as North America improves

Lululemon Athletica said on Thursday its third quarter was “off to a solid start” as the North American business improves, and the yogawear maker lifted its annual profit and revenue forecasts for a second time.

Shares in the company rose 1.6% in extended trading on the positive commentary. They had fallen some 4% in choppy trading right after Lululemon posted its quarterly earnings.

In the second quarter ended July 30, Lululemon’s North America sales rose 11% as its affluent customer base picked up more of its workout gear and crossbody bags. The company also said it gained market share in the United States in the period.

Sales in China, which accounted for roughly 12% of overall revenue, increased 61% thanks to resilient demand following the easing of pandemic curbs.

Still, these growth rates slowed from the first quarter as global economic uncertainty increased.

Lululemon previously said it was seeing no change in customer behavior, indicating that people were sticking to their pandemic habits of shopping for comfortable clothing such as Dance Studio joggers, running shorts as well as accessories like backpacks and small pouches.

“Guests are responding well to back-to-school and early fall product innovations,” Chief Executive Calvin McDonald said on a post-earnings call.

Lululemon said inventories increased 14% in the second quarter, below the roughly 20% growth forecast in June. It expects inventory to be up in the high single digit to low double-digits percentage in the third quarter.

To attract more customers, Lululemon has launched products including “road-to-trail” running shoes and introduced new colors in its sports apparel, while making additions to its tennis and golf collections.

“Strong demand for its core products as well as newer items like its performance sneaker and tennis ranges have enabled it to avoid heavy discounting and keep margins high,” said Insider Intelligence analyst Rachel Wolff.

The company’s gross margins increased 230 basis points to 58.8% in the second quarter.
The increase in annual forecast comes as some apparel makers including Nike are taking a cautious stance towards the second half of the year due to a weakening consumer spending environment.

The company now expects full-year 2023 revenue between $9.51 billion and $9.57 billion, up from its earlier estimate of $9.44 billion to $9.51 billion.

It expects annual profit between $12.02 and $12.17 per share. The company had earlier forecast earnings of $11.74 to $11.94 per share.