Lululemon Posted Strong Q4 Results but Guides to Slower Q1 Growth

Lululemon Athletica, Inc. CEO Calvin McDonald said the company was pleased with the solid finish for its 2023 fiscal year and continues to deliver ahead of its Power of Three ×2 strategy.

McDonald said LULU saw continued momentum across company channels, geographies, and merchandise categories, driven by its teams worldwide.

“As we step into 2024, we are focused on the significant opportunities ahead for Lululemon as we navigate the dynamic retail environment and deliver for guests through innovative new products and brand activations,” McDonald said in a release announcing fiscal fourth quarter and fiscal year results for the period ending January 28.

Fiscal 2023 Fourth Quarter Compared to Fiscal 2022 Fourth Quarter 

• Net revenue increased 16 percent to $3.2 billion.
  • Americas net revenue increased 9 percent.
  • International net revenue increased 54 percent, or 56 percent on a constant dollar basis.
• Comparable sales increased 12 percent.
  • Americas comparable sales increased 7 percent.
  • International comparable sales increased 43 percent, or 44 percent on a constant dollar basis.
• Gross profit increased 25 percent to $1.9 billion. Adjusted gross profit increased 20 percent to $1.9 billion.
  • Gross margin increased 430 basis points to 59.4 percent. Adjusted gross margin increased 200 basis points to 59.4 percent.
• Income from operations increased 191 percent to $913.9 million. Adjusted income from operations increased 16 percent.
  • Operating margin increased to 28.5 percent from 11.3 percent in the fourth quarter of 2022. Adjusted operating margin increased 20 basis points to 28.5 percent.
• The effective income tax rate for the fourth quarter of 2023 was 28.1 percent compared to 62.3 percent for the fourth quarter of 2022. The adjusted effective tax rate was 28.7 percent for the fourth quarter of 2022.
• Diluted earnings per share were $5.29 in Q4 2023 compared to 94 cents per share in the fourth quarter of 2022. Adjusted diluted earnings per share were $4.40 for the fourth quarter of 2022.

The company repurchased 0.1 million of its shares for a cost of $54.0 million.

The company opened 25 net new company-operated stores during the quarter, ending with 711 stores.

Fiscal 2023 Compared to Fiscal 2022

• Net revenue increased 19 percent to $9.6 billion, or increased 20 percent on a constant dollar basis.
  • Americas net revenue increased 12 percent.
  • International net revenue increased 54 percent, or 58 percent on a constant dollar basis.
• Comparable sales increased 13 percent, or 14 percent on a constant dollar basis.
  • Americas comparable sales increased 8 percent, or 9 percent on a constant dollar basis.
  • International comparable sales increased 35 percent, or 39 percent on a constant dollar basis.
• Gross margin increased 290 basis points to 58.3 percent.
  • Adjusted gross margin increased 240 basis points to 58.6 percent.
• Operating margin increased 580 basis points to 22.2 percent.
  • Adjusted operating margin increased 110 basis points to 23.2 percent.
• The effective income tax rate was 28.8 percent for 2023 compared to 35.9 percent for 2022.
  • The adjusted effective tax rate was 28.7 percent for 2023 compared to 28.1 percent for 2022.
• Diluted earnings per share were $12.20 compared to $6.68 in 2022.
  • Adjusted diluted earnings per share were $12.77 in 2023 compared to $10.07 in 2022.

The company repurchased 1.5 million shares for a cost of $554.6 million.

The company opened 56 net new company-operated stores during the year, ending with 711 stores.

Company CFO Meghan Frank stated: “Our solid fourth quarter and full year 2023 results demonstrate the strength and resilience of our omni operating model and our differentiated position in the marketplace. Looking ahead, we will stay focused on driving the business forward for the near-and long-term, while operating with agility and discipline. We are still early in our growth journey, and excited for what the future holds.”

Balance Sheet Highlights
The company ended 2023 with $2.2 billion in cash and cash equivalents compared to $1.2 billion at the end of 2022.

LULU had $393.7 million of capacity under its committed revolving credit facility at the end of 2023.

Inventories at the end of 2023 decreased by 9 percent to $1.3 billion compared to $1.4 billion at the end of 2022.

Fiscal 2024 Outlook
For the first quarter of 2024, LULU expects net revenue to range between $2.175 billion and $2.200 billion, representing 9 percent to 10 percent growth. The company expects diluted earnings per share to range from $2.35 to $2.40 for the quarter, assuming a tax rate of 29.0 percent to 29.5 percent.

For fiscal 2024, the company expects net revenue to range from $10.700 billion to $10.800 billion, representing growth of 11 percent to 12 percent, or 10 percent to 11 percent excluding the 53rd week of 2024. 

Diluted earnings per share are expected to range from $14.00 to $14.20 for the year, assuming a tax rate of approximately 30 percent.

The guidance does not reflect potential future repurchases of the company’s shares.

Power of Three ×2
The company’s Power of Three ×2 growth plan calls for doubling business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The plan’s key pillars are product innovation, guest experience and market expansion, with the growth strategy including a plan to double men’s, double e-commerce and quadruple international net revenue relative to 2021.

Image courtesy Lululemon