Lululemon stock experienced a notable 9% year-over-year increase in sales during its fiscal third quarter, driven by significant international growth. However, the athletic apparel retailer continues to face slowing sales in the U.S., its largest market.
On Thursday, the company reported results that surpassed Wall Street’s expectations for both revenue and earnings, signaling optimism as the holiday season kicks off. Despite the upbeat numbers, CEO Calvin McDonald struck a cautious tone when discussing the fourth-quarter outlook, emphasizing the challenges posed by a shortened holiday shopping season and the critical volume weeks ahead.
Third-Quarter Performance
Lululemon’s net income for the quarter ended October 27 rose to $352 million, or $2.87 per share, up from $249 million, or $1.96 per share, in the same period last year. The company’s revenue increased to $2.40 billion, a 9% rise from $2.20 billion a year earlier.
For the critical holiday shopping season, the company projects revenue between $3.48 billion and $3.51 billion, representing an 8% to 10% year-over-year growth. Analysts had anticipated revenue of $3.50 billion, aligning with the midpoint of Lululemon’s guidance. Expected earnings per share range between $5.56 and $5.64, slightly above Wall Street’s estimates.
Lululemon stock also revised its full-year revenue forecast, tightening and slightly raising the guidance to a range of $10.45 billion to $10.49 billion, up from the previous estimate of $10.38 billion to $10.48 billion. Full-year earnings per share are now expected to land between $14.08 and $14.16, exceeding analysts’ expectations of $13.97.
Challenges in the U.S. Market
While overall sales growth remains strong, Lululemon has hit a rough patch in the U.S., where comparable sales declined by 2% in the third quarter. Competition from established players like Nike and Gap’s Athleta, as well as newer brands such as Vuori and Alo Yoga, has intensified.
The company also faced internal challenges earlier this year. A high-profile product launch failed to meet expectations, and Lululemon struggled to provide customers with the desired colors and sizes in key categories. These issues were compounded by the departure of Sun Choe, the company’s longtime chief product officer, in May.
In response, McDonald introduced a new structure combining Lululemon’s brand and merchandising teams under Nikki Neuburger, the chief brand and product activation officer. This adjustment aims to improve efficiency and address past shortcomings. According to McDonald, the company is on track to introduce fresh product designs in time for the spring selling season.
Efforts to rejuvenate the women’s apparel segment appear to be paying off. Retail analysts noted that the third-quarter product assortment felt refreshed, improving conversion rates and boosting average basket sizes for Lululemon stock.
International Growth and Profitability
While U.S. sales have slowed, international markets have provided a much-needed boost. Comparable sales outside the U.S. surged by 25% in the quarter, driving a 33% revenue increase internationally. In contrast, the Americas region grew by just 2%. Despite its smaller contribution to overall revenue, international expansion has become a key driver of Lululemon’s growth strategy.
The company has also prioritized profitability amid uncertain demand. Gross margin grew more than expected, rising by 1.5 percentage points to 58.5%, exceeding analysts’ projections of 57.5%.
Strategic Moves Amid Economic Pressures
Lululemon’s challenges have coincided with broader economic concerns, including persistent inflation and cautious consumer spending. The brand’s ability to quickly address product assortment issues and enhance its offerings has helped mitigate some of these challenges.
To maintain investor confidence, the company has approved a $1 billion increase in its stock repurchase program, leaving approximately $1.8 billion available for buybacks as of this month.
As Lululemon stock continues to navigate a competitive and uncertain retail environment, its focus on international growth, improved product offerings, and profitability positions it to weather short-term challenges and sustain long-term momentum.
