- Shares of the athletic apparel company Lululemon fell in extended trade, after it provided weaker-than-expected fourth quarter guidance, despite topping earnings estimates in the most recent period.
- Third quarter net revenue increased 28% to $1.9 billion (31% on a constant dollar basis).
- Same-store-sales were up 22% as sales via the direct-to-consumer channel improved.
- Geographically, revenue increased 26% in North America, and 41% internationally.
- Gross profit rose 25% to $1.0 billion with the gross margin decreasing 130 basis points to 55.9%, short of analysts’ average estimate of 56.7%.
- Income from operations increased 37% to $352.4 million with the operating margin increasing 120 basis points to 19%.
- Third quarter diluted earnings per share came in at $2.00 compared to $1.44 in the same period in 2021. And the Company ended the third quarter with $352.6 million in cash and cash equivalent, and a similar amount for its credit facility.
- Calvin McDonald, CEO of Lululemon, said the company had a strong start to the holiday season with Black Friday being the biggest day in the company’s history for sales and store traffic.
- Inventories have been increased by 85% to $1.7 billion in anticipation of the fourth quarter holiday period to support revenue growth. McDonald also mentioned no discounting would be necessary in the upcoming period to clear stock.
- For the fourth quarter of 2022, the Company expects net revenue to be in the range of $2.605 billion to $2.655 billion (up 24% y-o-y). And diluted earnings per share are expected to be in the range of $4.20 to $4.30 for the quarter.
- The explanation for the increased inventory and quarterly guidance didn’t placate investors, as shares came under pressure post results.
- Investors are seeing rising interest rates, a deteriorating labour market, a recessionary outlook by major banks and economists, and persistent above average levels of inflation, influencing the US consumer. We do not hold shares in Lululemon, but instead are owners of Nike in the athletics apparel space.
By Lee Kern