Lululemon delivered strong Q1 results and raised its FY guidance yesterday. But it also pointed out that recent problems in its US business were caused by its own mistakes, not by competitive pressures or market conditions. The Canadian group blamed missed opportunities in not having certain smaller sizes available for US female customers and a too narrow color range in its legging business for its US woes during the period.
However, senior management stressed that US traffic was positive for the period ended April 28, the health of the market’s business “remains strong,” and its product problems, including additional items tied to its Everywhere belt bag, will be addressed in H2. The company, citing product pipeline innovation and further retail expansion, has raised its FY24 EPS guidance. Annual sales are projected to grow by 11 to 12 percent year-over-year to $10.7 to $10.8 billion, with annual gross margins pegged at flat. There will be 35 to 40 new stores and 40 co-locations to raise total retail square footage by low double-digits. All new doors will be in markets outside the U.S. except for 5 to 10.
Operating income rose 7.8 percent to $432.6 million from $401.4 million in Q1 as Ebit improved by 11.4 percent to $455.9 million and net income rose by 10.7 percent to $321.4 million. Gross margin inched up by 20 basis points to 57.8 percent despite a 50-basis-point increase in markdowns that will likely repeat in Q2.
| Lululemon - Income | |||
|---|---|---|---|
| Q1 ($ thousand) | |||
| 2024 | 2023 | Change | |
| Net revenue | 2,208,891 | 2,000,792 | 10.4% |
| Cost of goods sold | 933,823 | 849,987 | 9.9% |
| Gross profit | 1,275,068 | 1,150,805 | 10.8% |
| SG&A expenses | 842,426 | 747,513 | 12.7% |
| Amortization of intangible assets | – | 1,878 | – |
| Income from operations | 432,642 | 401,414 | 7.8% |
| Other income, net | 23,283 | 8,025 | 190.1% |
| Pre-tax | 455,925 | 409,439 | 11.4% |
| Tax | 134,504 | 119,034 | 13.0% |
| Net income | 321,421 | 290,405 | 10.7% |
| Diluted EPS | 2.54 | 2.28 | 11.4% |
| Source: Lululemon Athletica Inc. | |||
Total Q1 reported revenues lifted 10.4 percent higher to $2.21 billion from $2.0 billion. Regionally, China sales were up 50 percent year-over-year in constant currency and 30 percent higher in the Rest of the World. Americas’ sales, impacted by a slower start to the year caused largely by issues in the women’s and bags’ segments, rose by 4 percent. Women’s sales rose by 10 percent; men’s were 15 percent higher; and accessories business grew by 2 percent in the period.
Senior management, while touting growth opportunities worldwide, also believes there remains a “compelling” upside in the US, where unaided brand awareness stands at 30 percent. The company says its product launch cadence is strong for H2 and that it will test another television advertising campaign aimed at the men’s market in Q3. Elsewhere in North America, Lululemon is acquiring its franchise partner in Mexico and its 15 stores in the market for $160 million in cash, but the transaction will not have a material impact on its results.
