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Retailers have had mixed fortunes during the holiday season this year. For some businesses, sales were hit by weak consumer confidence amid macro uncertainty and inflation, while others thrived on strong customer demand. Buoyed by holiday gains, athletic apparel company Lululemon Athletica (NASDAQ: LULU ) has released bullish sales and earnings guidance for the year.
Lululemon’s fourth quarter report spurred a rally and shares gained about 10% after this week’s announcement. Stronger-than-expected results are a testament to the success of the company’s business model. This shows that customers, especially wealthy shoppers, are buying discretionary items like sneakers and yoga pants, at a time when personal finances are under pressure due to rising interest rates and inflation.
Stock Rally
After making one of its biggest one-day gains, LULU is now trading well above its long-term average. With the company’s resilience against recent market headwinds and management’s positive guidance, the stock looks poised to maintain its upward momentum in the coming weeks. It offers an entry point for those looking for long-term engagement, although the price is not cheap.
The Vancouver-headquartered company recovered quickly from the downturn it suffered after the COVID-19 outbreak more than two years ago and has maintained stable earnings and sales performance since then. Throughout, the headline numbers topped or matched Wall Street expectations every quarter.
Strong Numbers
The company has an optimistic start to 2023, reporting strong sales and earnings in the last three months of its last fiscal year. Net profit, adjusted for non-recurring items, rose 31% year over year to $4.40 per share in the January quarter, helped by a 30% growth in revenue to $2.77 billion. It opened 32 new company-operated stores during the quarter, bringing the total to 655 units worldwide. Comparable sales, a metric that measures sales from stores open continuously for at least 12 months, rose 27% over the period.
Commenting on the results, Lululemon chief executive Calvin McDonald said, “Our continued level of performance is a reflection of the hard work and agility of our incredible team and the deep connections we have made with our guests and communities around the world. As we enter 2023, we look forward to another year of strong momentum around the world and implementing our plans Power of Three × 2 growth.
Outlook
Encouraged by the positive results, management predicts 2023 profit in the range of $9.3 billion-$9.41 billion, which exceeds the consensus estimate. Full-year profit is expected to be between $11.50 and $11.72 per share, the midpoint of which is above market projections. After recovering from inventory issues, Lululemon looks poised to expand its international footprint and continue to grow its men’s business. The weakness of the price will be compensated by the steady traffic of customers. Meanwhile, the decline in margins, reflecting price pressure, remains a concern.
Over the past three years, the company’s market share has grown at a compounded annual rate of 24% in North America, while its international market share has increased by 39%. On Wednesday, LULU gained 13% in the hours after opening, continuing its post-earnings rally. The stock has gained 23% since last week.
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