Lululemon’s Fiscal First Quarter Results Well Received But Competition Remains Fierce

Image: Lululemon’s shares have been under considerable pressure so far in 2024.

By Brian Nelson, CFA

On June 5, Lululemon (LULU) reported better than expected first quarter fiscal 2024 results for the period ended April 28 that beat expectations on both the top and bottom lines. Net revenue increased 10% (11% on a constant dollar basis), while comparable sales increased 6% (7% on a constant dollar basis). The company’s operating margin faced pressure in the period, but its gross margin expanded 20 basis points from last year’s period. Its diluted earnings per share came in at $2.54 in the quarter versus $2.28 per share in the same period a year ago.

Management’s commentary was upbeat in the press release:

In the first quarter, we saw strong momentum in our international markets, demonstrating how our brand continues to resonate around the world. Guests responded well to our product innovations across categories, and we are pleased by the progress we are making to optimize our U.S. product assortment. Looking ahead, we continue to have a significant runway for growth and are confident in our team’s ability to powerfully deliver for our guests in 2024 and beyond.

We reported first quarter results ahead of our expectations as we operated with agility and continued to make strategic investments in the business. As we look to the rest of the year, we remain focused on leveraging our strengths and differentiated model to advance our Power of Three ×2 strategy and fuel performance. We are energized by the opportunities in front of us and believe we are well-positioned to drive sustainable, long-term growth.

The company’s guidance for fiscal 2024 was well received. For the fiscal year, management expects net revenue in the range of $10.7-$10.8 billion, which implies growth of 11%-12%. Lululemon’s diluted earnings per share is now targeted in the range of $14.27-$14.47, which compares to the consensus estimate of $14.14 per share at the time. Lululemon continues to buy back shares, and the firm approved an additional $1 billion to its stock repurchase program where $1.7 billion remains authorized. Inventory levels fell 15% in its fiscal first quarter from the same period a year ago.

Management’s Power of Three x2 is as follows:

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.

We think Lululemon’s Power of Three x2 initiatives are achievable, but hitting these long-term targets won’t be easy given increasing competition in the athleisure space from Vuori and others. Shares of Lululemon have fallen quite a bit since peaking in December of last year. We won’t be adding Lululemon to any newsletter portfolio anytime soon, and our $350 per share fair value estimate remains unchanged.

—–