What happened
Shares of Lululemon Athletica (LULU 1.31%) stock fell 13% in May, according to data from S&P Global Market Intelligence. Investors were worried about the retail market leading up to Lululemon's first-quarter report, released on June 1. However, they were pleasantly surprised by the excellent report, and Lululemon stock climbed 11% after the report.
So what
Lululemon continues to demonstrate incredible resilience in the face of overall negative market conditions. Many companies have taken all sorts of actions to generate sales in a hostile retail climate and maintain or improve profitability through price increases and costs efficiencies, but they only go so far as long as inflation is still here. Even retailers that were managing at first are beginning to feel the pinch.
Lululemon, however, continues to pump along with strong operational performance. In the 2023 first fiscal quarter, ended April 30, sales increased 24% over last year to $2 billion. Comparable sales increased 13%, and direct-to-consumer revenue, what it calls its digital segment, was up 17% more than last year. Digital accounted for 42% of sales, compared with 45% last year. Lululemon's balanced omnichannel options are an important element of its performance, and that's even clearer now as the digital presence and physical stores are having a see-saw moment in how shoppers spend their money.
Management recently released a new growth strategy that focuses on digital, men's sales, and international sales, and the international segment was robust in the first quarter, growing 60%.
Profitability was strong as well. Operating margin increased to 20.1%, and earnings per share (EPS) increased from $1.48 last year to $2.28 this year.
Lululemon's premium prices add to profitability, and its non-seasonal merchandise doesn't have to be marked down as much as seasonal products do. Its focus on an affluent customer, while still posing a price point that's available to many mass consumers, helps it generate sales growth even in this challenging operating environment.
Now what
Management is guiding for second-quarter sales to increase 15% with EPS of about $2.50. It raised its full-year guidance to a 17% sales increase from 15%, and for full-year EPS to be about $11.85, up from the original $11.61.
It's no wonder Lululemon stock jumped on the report, especially having fallen earlier with the expectation of pressure.
Lululemon is running an excellent business, and it has continued opportunities, but its stock isn't cheap. Shares trade at 49 times trailing-12-month earnings, but that's still below the five-year average of 54. Will you get the opportunity to buy it a cheaper price? You can't time the market, and the market gives Lululemon stock a premium valuation because it's so reliable for growth. Investors can feel comfortable buying Lululemon stock even at this price.
