Lululemon Beats Expectations, Raises Full-Year Outlook

Lululemon Athletica Inc.’s revenue rose 24 percent year over year to $2 billion in the first quarter of fiscal 2023, ended April 31 — beating analyst estimates of $1.92 billion. Comparable store sales increased 16 percent.

Though the retailer said it remains cautious amid macroeconomic uncertainty, Lululemon raised its full year net revenue expectations, anticipating 17 percent growth for sales to fall between $9.4 and $9.5 billion — up from prior guidance of $9.31 billion and $9.41 billion. For the second quarter of 2023, the athletic wear retailer expects revenue in the range of $2.14 billion and $2.17 billion, an increase of around 15 percent. Shares rose 10 percent in extended trading.

Like many other retailers, Lululemon has seen uncertain consumer demand and growing costs that has cut into profitability. Gross profit for the quarter increased 32 percent to $1.2 billion and gross margin was up 360 basis points to 57.5 percent. On a call with investors, chief financial officer Meghan Frank chalked that growth up to lowered freight costs, which the company will continue to see throughout the year.

Frank said markdowns were in line with last year, and that the retailer has taken a stronger inventory position this year. Inventory turnover, however, remained lower than pre-pandemic levels.

“Too soon to say when we’ll move back to those levels, but that would be the goal over the longer term,” said Frank.

In April 2022, Lululemon debuted a plan to double the business from its 2021 revenue of $6.5 billion to $12.5 billion by 2026 through product innovation, expanding the men’s category, direct-to-consumer growth and market expansion.

As part of this strategy, the brand is launching new lines and adding hero products: last year it launched shoes, and it built on its popular Align leggings with an Align dress in May. In the year ahead, it will continue to build out golf and tennis collections. The company’s strong retail network has helped it stay resilient against emerging competitors like Alo Yoga.

Lululemon plans to open 50 new doors this year. Over half of those will be located internationally — mostly in China, where the brand has set big expectations.

The Chinese athletics landscape represents a huge opportunity for brands, but also a challenge, especially as homegrown brands like Anta and Li Ning gain in popularity. Outside of opening stores, Lululemon is building awareness through local-focused campaigns, with ambassadors including Formula 1 driver Zhou Guanyu, who the brand brought on board in January, said chief executive Calvin McDonald.

Strong growth in China buoyed results: revenue in the region was up 79 percent. Total net revenue abroad increased 60 percent compared to 17 percent in North America.

Elsewhere, the brand has been looking to find inroads with new consumers. It debuted a membership program “Lululemon Essential,” alongside a new app fit with workouts in October 2022. (The brand is trying to offload The Mirror business, which is acquired for $500 million in 2020, according to Bloomberg.) In May, Lululemon hosted a viral “dupe swap,” where it offered free Align leggings to mostly Gen-Zers who brought their knock-offs to a store in Los Angeles.

“Brand awareness and consideration is low and represents a significant runway of growth and opportunity for our business,” said McDonald.