Lululemon Athletica Inc. saw shares slip in after-hours trading on Thursday, August 29 after the company came up short against sales estimates. Comp store sales growth was also softer than expected, rising 2 percent against analysts’ estimates for 5.9 percent growth.

But the item that is making headlines is the lowered outlook for the year, based on executional issues, but even that may have been more muted that some expected.

LULU shares were back in positive territory by Friday morning as the company revealed in a conference call with analysts that it was fast-tracking product fixes to offset executional issue, particularly with the Breezethrough leggings that had to be pulled from retail earlier this summer.

Shares are still down more than 49 percent year-to-date.

The company ceased sales of the new leggings in July as market called out the V-shaped back seam of the tights as “unflattering”. Others said the seam at the top of the waistband was digging into their waists.

“For 2025, we are fast-tracking still new styles within performance shorts, tops and track suits,” explained company CEO Calvin McDonald in a conference call with analysts. “We are optimistic that we will begin to see the benefits of these strategies over the upcoming quarter.”

Lululemon reported second quarter net revenue increased 7 percent to $2.37 billion, or increased 8 percent on a constant-currency (cc) basis. Analysts were looking for $2.41 billion.

  • Americas net revenue increased 1 percent (+2 percent cc).
  • International net revenue increased 29 percent (+31 percent cc).
  • Comparable sales increased 2 percent, or +3 percent cc for the quarter.
  • Americas comparable sales decreased 3 percent (-2 percent cc)
  • International comparable sales increased 19 percent, or +22 percent on a constant-currency basis.

“In the second quarter, Lululemon delivered revenue and earnings growth, with ongoing strength across our international business,” commented Calvin McDonald, CEO, Lululemon Athletica Inc. “In the U.S., our teams continue to optimize our product assortment and remain focused on driving forward our opportunities in the market. Looking ahead, we feel confident in the long runway in front of us as we execute on our Power of Three ×2 growth plan.”

In closing his prepared comments on the call with analysts, McDonald may have struck the perfect tone that most expect from a chief executive.

“Challenges are a natural part of accelerated growth, and I feel confident about emerging stronger from this period as we innovate for and inspire our guests,” he concluded.

Income Statement Summary
Gross profit increased 9 percent to $1.4 billion, with gross margin increasing 80 basis points to 59.6 percent of net sales.

Income from operations increased 13 percent to $540.2 million, resulting in the operating margin increasing 110 basis points to 22.8 percent of net sales.

The effective income tax rate for the second quarter of 2024 was said to be 29.6 percent compared to 29.8 percent for the second quarter of 2023.

Diluted earnings per share were $3.15 compared to $2.68 per share in the second quarter of 2023, and above consensus estimates for $2.93 per share.

“Earnings per share exceeded our expectations in the second quarter, driven by better-than-expected gross margin expansion and disciplined execution,” said Meghan Frank, CFO. “As we enter the back half of the year, we remain focused on executing on our near-term priorities, while strategically investing for long-term growth. I would like to thank our teams around the world for their commitment to Lululemon.”

Balance Sheet Summary
The company ended the second quarter of 2024 with $1.6 billion in cash and cash equivalents and the capacity under its committed revolving credit facility was $393.7 million.

Inventories at the end of the second quarter of 2024 decreased 14 percent year-over-year to $1.4 billion compared to $1.7 billion at the end of the second quarter of 2023.

Other
The company repurchased 1.9 million of its shares for a cost of $583.7 million. The company opened 10 net new company-operated stores during the second quarter, ending with 721 stores.

2024 Outlook
For the third quarter of 2024, the company expects net revenue to be in the range of $2.340 billion to $2.365 billion, representing growth of 6 percent to 7 percent year-over-year. Diluted earnings per share are expected to be in the range of $2.68 to $2.73 for the quarter. This assumes a tax rate of approximately 30 percent.

For full year 2024, the company now expects net revenue to be in the range of $10.375 billion to $10.475 billion, representing growth of 8 percent to 9 percent, or 6 percent to 7 percent excluding the 53rd week of 2024. Diluted earnings per share are now expected to be in the range of $13.95 to $14.15 for the year. This assumes 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 a doubling of the business from 2021 net revenue of $6.25 billion to $12.5 billion by 2026. The key pillars of the plan are product innovation, guest experience, and market expansion and the growth strategy includes a plan to double men’s, double e-commerce, and quadruple international net revenue relative to 2021.

Image courtesy Lululemon Athletica Inc.