Athletic apparel specialist Lululemon Athletica (LULU -3.08%) reported mixed second-quarter results on Thursday. Earnings per share (EPS) surpassed analyst consensus expectations but revenue slightly missed. This reflects steady growth but highlights areas for potential improvement in revenue generation.
The quarter was marked by robust international growth and improved margins, but the growth in the Americas lagged. Overall, the quarter showed strong gains in profitability and sizeable progress in international markets, offset by some sales growth concerns.
| Metric | Q2 2024 | Analyst Estimates | Q2 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $2.4 billion | $2.41 billion | $2.2 billion | 7% |
| EPS | $3.15 | $2.93 | $2.68 | 17.5% |
| Gross profit | $1.4 billion | N/A | $1.3 billion | 9% |
| Gross margin | 59.6% | N/A | 58.8% | 80 bps |
| Income from operations | $540.2 million | N/A | $479.3 million | 13% |
Source: Lululemon Athletica. Note: Analyst estimates for the quarter provided by FactSet. YOY = Year over year. EPS = earnings per share. bps = basis points.
Business Overview and Strategic Focus
specializes in athletic apparel, footwear, and accessories. Founded in 1998, it prides itself on product innovation driven by technically advanced fabrics and functional designs. The company's omnichannel retail strategy merges physical and digital retail experiences, boasting 721 stores globally. Recent key strategies focus on product innovation, international expansion, and brand building, essential for competitive differentiation.
Second Quarter Performance
Second quarter earnings offered a mixed, yet promising outlook. Here are the main highlights.
Robust International Growth: Revenue from international markets surged by 29% year over year (31% on a constant currency basis). China has been a significant contributor, highlighting the company's strategic focus on tapping into growing markets. This geographical diversification is vital for reducing reliance on the slowing North American region. Revenue in the Americas was up just 1% year over year, underlining the need for renewed strategies in this mature market.
Improved Margins and Profitability: Gross profit increased by 9% year over year to $1.4 billion, benefiting from an improved of 59.6%, up 80 basis points. Operating margins showed robust improvement as well, reaching 22.8% (compared to 21.7% in the previous year). This performance indicates effective cost management and pricing strategies.
Product and Supply Chain Developments: The company did not introduce major new product categories this quarter, but it continues to emphasize high-quality, technically advanced fabrics in its existing product lines. Inventory levels decreased by 14%, signifying effective inventory management.
Future Focus
Management's Financial Outlook: presented a positive outlook for the remainder of fiscal 2024. For Q3, net revenue is projected to be between $2.34 billion and $2.365 billion, representing growth of 6% to 7%. Diluted EPS is expected to fall between $2.68 and $2.73.
The company now expects full-year revenue of $10.375 billion to $10.475 billion, down $325 million from its guidance three months ago. The guidance for full-year diluted EPS is set between $13.95 and $14.15, representing a $0.32 per share cut compared to three months prior.
Key Areas to Watch: Investors should pay close attention to Lululemon's strategies for reigniting growth in the Americas, particularly as international markets continue to outperform. The firm's ability to innovate and introduce trend-forward product lines will be crucial. Additionally, its omnichannel strategy, which includes both physical retail and digital platforms, offers unique opportunities for revenue diversification. Effective inventory and supply chain management will remain critical to maintaining high profit margins.
