Lululemon Athletica, Inc., bucking a recent trend toward guidance cuts for most retailers, raised its outlook for the year after reporting first-quarter results that topped expectations. Comparable-store sales jumped 17 percent on a constant dollar basis, but a significant recovery in China, coupled with lower air freight, particularly boosted the improved earnings in the quarter.

Revenue increased 24 percent to $2.0 billion, exceeding company guidance calling for sales to grow approximately 18 percent to a range of $1.89 billion to $1.93 billion. EPS of $2.28 topped company guidance in the range of $1.93 to $2.00. Wall Street’s consensus estimates had called for EPS of $1.96 on sales of $1.92 billion.

Calvin McDonald, Chief Executive Officer, stated: “We are pleased with our solid start to the year, delivering strong financial performance and continued momentum. Our results reflect the strength of our guest relationships, our innovative products and how our brand resonates across the globe. This year we celebrate our 25th anniversary, and our community-based model remains one of our biggest competitive advantages. We are excited for the future and remain on track to deliver on our Power of Three ×2 growth plan.”

For the first quarter of 2023, compared to the first quarter of 2022:

  • Net revenue increased 24 percent to $2.0 billion or increased 27 percent on a constant dollar basis.
    • Net revenue increased 17 percent in North America and increased 60 percent internationally.
  • Total comparable sales increased 14 percent, or 17 percent on a constant dollar basis.
    • Comparable store sales increased 13 percent, or 16 percent on a constant dollar basis.
    • DTC net revenue increased 16 percent, or 18 percent on a constant dollar basis.
  • DTC net revenue represented 42 percent of total net revenue compared to 45 percent for the first quarter of 2022.
  • Gross profit increased 32 percent to $1.2 billion and gross margin increased 360 basis points to 57.5 percent.
  • Income from operations increased 54 percent to $401.4 million.
  • Operating margin increased 400 basis points to 20.1 percent.
  • Income tax expense increased 69 percent to $119.0 million. The effective tax rate for the first quarter of 2023 was 29.1 percent compared to 27.0 percent for the first quarter of 2022.
  • Diluted earnings per share were $2.28 compared to $1.48 in the first quarter of 2022.
  • The company repurchased 0.3 million shares of its own common stock at an average price of $336.37 per share for a cost of $98.1 million.
  • The company opened seven net new company-operated stores during the first quarter, ending with 662 stores.

Meghan Frank, CFO at Lululemon, said, “Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our better than planned financial performance. We are pleased with our momentum heading into the second quarter and for the full year as reflected in our revised outlook for FY23.”

Balance Sheet Highlights
The company ended the first quarter of 2023 with $950.6 million in cash and cash equivalents and the capacity under its committed revolving credit facility was $393.5 million. Inventories at the end of the first quarter of 2023 increased 24 percent to $1.6 billion compared to $1.3 billion at the end of the first quarter of 2022.

2023 Outlook
For the second quarter of 2023, the company expects net revenue to be in the range of $2.140 billion to $2.170 billion, representing growth of approximately 15 percent. Diluted earnings per share are expected to be in the range of $2.47 to $2.52 for the quarter. This guidance assumes a 30 percent tax rate.

For 2023, the company expects net revenue to be in the range of $9.440 billion to $9.510 billion, representing growth of approximately 17 percent. Diluted earnings per share are expected to be in the range of $11.74 to $11.94 for the year. This guidance assumes a 30 percent tax rate.

Under its previous guidance, sales were expected in the range of $9.300 billion to $9.410 billion, representing growth of approximately 15 percent. EPS had been expected in the range of $11.50 to $11.72.

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 direct to consumer, and quadruple international net revenue relative to 2021.

Photo courtesy Lululemon