Lululemon’s International Business Powers Results, Tweaks 2024 Guidance

Image Source: Lululemon

By Brian Nelson, CFA

On December 5, Lululemon (LULU) reported better than expected results for its third quarter of fiscal 2024, with both revenue and GAAP earnings per share exceeding the consensus forecasts. Net revenue increased 9% (8% on a constant dollar basis) in the quarter thanks primarily to strength in its International net revenue, which advanced 33% (30% on a constant dollar basis). Americas net revenue increased 2% in the quarter. Comparable sales advanced 4% (3% on a constant dollar basis) for the quarter led by International comparable sales growth of 25% (or 22% on a constant dollar basis). Americas comparable sales decreased 2%.

Lululemon’s gross profit increased 12% in the quarter as its gross margin expanded 150 basis points. Adjusted gross margin advanced 40 basis points. Its income from operations increased 45% in the quarter, with the adjusted measure increasing 12%. The athleisure retailer experienced a 520 basis-point increase in its operating margin, with the adjusted measure advancing 70 basis points. On the bottom line, diluted earnings per share increased 13.4%, to $2.87, compared to $1.96 in the same period a year ago, or $2.53 on an adjusted basis. The company added 28 new company-operated stores during the fiscal third quarter.

Management was upbeat in the press release:

Our third quarter results, which exceeded our expectations, demonstrate the ability of our teams to be agile in a dynamic operating environment. With the majority of the fourth quarter still in front of us, we are focused on deepening engagement with our guests and bringing new consumers into the brand. We are committed to delivering on our Power of Three ×2 revenue target of $12.5 billion in 2026 and look forward to all that lies ahead.

During the third quarter, Lululemon bought back 1.6 million shares at a cost of $408.5 million, while the board of directors approved a $1 billion increase to its repurchase program, amounting to $1.8 billion remaining authorized for buybacks. The company ended the quarter with $1.2 billion in cash and cash equivalents, and no traditional debt. Inventories at the end of the third quarter were up 8%, to $1.8 billion. For the three quarters ended October 27, 2024, net cash provided by operating activities came in at $871.3 million, while capital spending was $454.3 million, resulting in free cash flow of $417.1 million.

For fiscal 2024, Lululemon now expects net revenue in the range of $10.452-$10.487 billion (was $10.375-$10.475 billion), representing growth of 9%, or 7% when excluding the extra week in 2024. The outlook was above the consensus forecast of $10.43 billion. Its diluted earnings per share is now expected in the range of $14.08-$14.16 (was $13.95-$14.15 per share) for the year. Thanks in part to strength of its International business, Lululemon’s Power of Three x2, which calls for a doubling of net revenue by 2026 from 2021 levels, to $12.5 billion, remains in the ballpark. The high end of our fair value estimate range stands at $400 per share.

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