Lululemon Athletica (NASDAQ:LULU) Q2 Earnings Report

Lululemon Athletica reported better-than-expected second-quarter earnings but reduced its full-year revenue guidance.

• Earnings Per Share: The company posted adjusted EPS of $3.15 for the quarter ending July 28, surpassing analyst estimates of $2.94.
• Revenue: Revenue increased by 7% YoY to $2.4 billion, slightly below the consensus forecast of $2.41 billion.

LULU shares initially fell in after-hours trading but recovered, trading up 4.5% in Friday’s premarket.

• Comparable Sales: Increased 2%, or 3% on a constant dollar basis. International sales saw a surge of 29%, while growth in the Americas slowed to only 1%.

Future Guidance

Lululemon provided weaker-than-expected revenue guidance for Q3, expecting between $2.34 billion and $2.365 billion, below analyst projections of $2.41 billion. The company also lowered its full-year revenue guidance to $10.375 billion – $10.475 billion from the previous range of $10.7 billion – $10.8 billion, missing consensus estimates of $10.62 billion.

CEO Calvin McDonald stated, “In the second quarter, Lululemon delivered revenue and earnings growth with ongoing strength in our international business.” He also noted the team’s focus on optimizing product assortment in the U.S.

Financial Metrics

• Gross Margin: Expanded by 80 basis points to 59.6%.
• Operating Margin: Increased by 110 basis points to 22.8%.
• Store Expansion: Opened 10 net new stores, ending with a total of 721 locations.

Analyst Insights

Stifel analysts commented on LULU’s positive U.S. consumer engagement and traffic but acknowledged that women’s conversion softened, attributing it to a merchandising misstep rather than a brand issue. They believe LULU needs to prove improvement in the U.S. business to shift the negative narrative surrounding it.

Morgan Stanley analysts noted that the market’s positive share reaction despite revenue misses indicates a low bar for expectations. They believe management’s Q4 and full-year guidance sets a low target, potentially allowing for EPS outperformance soon, which skews the risk/reward favorably for investors.

Senad Karaahmetovic contributed to this report.