2 Key Things From Lululemon's Earnings Call That Investors Should Know

Shares of Lululemon Athletica (LULU 1.31%) jumped 11.3% following the athletic-wear retailer's June 1 release of a strong report for the first quarter of fiscal 2023. For the quarter ended April 30, revenue jumped 24% year over year to $2 billion. Net income soared 53% to $290.4 million, which translated to earnings per share increasing 54% to $2.28.

The quarter's top- and bottom-line results exceeded Wall Street's expectations, as well as the company's own guidance. Moreover, management raised its revenue and earnings guidance for fiscal year 2023. 

Earnings releases tell only part of the story. Following are two key things from the company's first-quarter earnings call that investors should know. 

1. Sales strength continues to be broad-based

From CEO Calvin McDonald's remarks:

Revenue increased 24% versus last year, balanced across category, [sales] channel, and region. Women's was up 22%, men's was up 17%, and accessories was up 67%. Comparable sales grew 16% in stores and 18% in our e-commerce business. And by region, North America grew 17% and international increased 60%. 

In the women's category, growth was driven by Scuba, Define (jackets and hoodies), and Align, which is the company's flagship franchise that began with leggings and now includes other apparel, such as shirts.

Particularly impressive was the most mature subcategory -- women's bottoms -- growing a robust 22% year over year. McDonald attributes this to the company continuing to "update and enhance existing styles, bring innovation via new fabric technologies, and create new styles and silhouettes that solve for unmet needs."

In the men's category, the ABC, Commission, and Pace Breaker franchises drove growth. Commission pants are reportedly more relaxed, while ABC pants have a slimmer fit. Pace Breaker, as the name suggests, focuses on running and training shorts.

Strength in bags, backpacks, and duffels drove growth in accessories. While accessories is currently the smallest of the company's three categories, it has fantastic long-term growth potential. Much of this potential stems from the company's entree into the footwear category in North America, Mainland China, and the United Kingdom in March 2022 via the launch of its Blissfeel running shoe for women. Since then, it has rolled out several additional styles for women. Plans to launch footwear for men are in the works.

As for the sales channel, the pandemic showed the huge benefit of having an omnichannel approach -- one that includes digital sales -- rather than solely or primarily focusing on physical stores. 

2. A long runway for international growth, especially in China

From McDonald's remarks:

We have a target to quadruple our business outside North America between 2021 and 2026. This will be driven predominantly by our existing markets, but we'll be entering some exciting new markets as well.

Lululemon's goal of quadrupling its business outside of its core North America region in five years is aggressive, but seems very achievable. The company's business outside North America is relatively small, meaning there's significant untapped growth potential. Its international region accounted for just 16% of its sales in fiscal 2022, which ended in late January 2023. The company generated total sales of $8.11 billion in fiscal 2022, so 16% of that is about $1.3 billion.

Consumers outside North America are responding very well to the company's products. In the just-reported quarter, international revenue rocketed 60% year over year, while North America sales jumped 17%. International growth was driven by a 79% surge in sales in Greater China.

On the call, chief financial officer Meghan Frank said the company plans to open about 50 net new company-operated stores in 2023, and 30 to 35 of them will be in its international market, "with the majority of these being planned for China."

In the Europe, Middle East, and Africa region, McDonald said that Lululemon is "off to a great start in Spain, a market that we entered last fall," and that "with the help of a franchise partner, we recently opened our first store in Tel Aviv." Israel became the company's 24th market globally.

In the Asia-Pacific region, where McDonald characterized Lululemon's business as "robust," the company plans to enter Thailand in the next several months by opening a store in the capital city, Bangkok.