Fueled by a 30 percent increase in traffic, a 79 percent jump in sequential Greater China quarterly sales, and a 430-basis-point improvement in product margin as air freight costs abated, Lululemon Athletica Inc. reported strong Q1 results that exceeded its sales and profit expectations. With the strong showing, the company shares surged more than 13.0 percent in after-market trading.
Q1 operating income jumped 54 percent to $401.4 million from $260.3 million in the period ended April 30. Net income came in nearly 53 percent higher year-over-year at $290.4 million versus $190.0 million. Gross margin improved 360 basis points to 57.5 percent despite a 30-basis-point increase in product and supply costs and a 50-basis-point impact from currency headwinds.
Total revenue increased by 24 percent to $2.0 billion from $1.61 billion due to higher company-operated store and direct-to-consumer sales. Comparable sales were 16 percent higher on a constant-currency basis in stores to $958.1 million and up 18 percent in the e-commerce channel to $834.9 on higher traffic which was able to offset lower conversion rates and lower dollars spent per transaction. Women’s sales increased by 22 percent, helped by resurgent demand for its dance studio pant; men’s sales rose by 17 percent; and accessories sales, sparked by bags, backpacks and duffle bags, improved by 67 percent. Regionally, North American sales rose by 17 percent in Q1 and by 60 percent elsewhere in the world, bolstered by the results in Greater China. In the EMEA, the brand is off to “a great start” in Spain and has opened Israel as its 24thmarket. In the coming months, Lululemon will enter open a store in Bangkok, Thailand.
Now in its 25th year, Lululemon is intent on growing its international market presence and brand awareness, part of its previously disclosed strategy to quadruple business outside North America between 2021 and 2026. The international approach will mirror what has worked in the home market—developing multi-channel appeal, focusing on the local community, and offering its same but growing product assortment. The company ended Q1 with 662 stores around the globe.
The company’s current FY outlook calls for 16 to 17 percent revenue growth to a range of $9.44 to $9.51 billion, 15 net new stores, and 25 remodels/relocations, including 30 to 35 in international markets, with the majority in Greater China. Gross margin is forecast to improve by 180 basis points, helped by lower air freight costs, with the annual operating margin expanding by 30 to 50 basis points. The group is forecasting the annual capital expenditures range at $660 to $680 million, or about 7 percent of revenues. Markdowns are expected to be on par with FY22’s level. For Q2, Lululemon expects revenue growth of 15 to 16 percent to a range of $2.14 to $2.17 billion with gross margin improvement of 200 to 220 basis points due to lower air freight expenses. The company introduced a new digital, $12.99 a month, app earlier this week.
