Lululemon Stock Pops on Earnings Beat and Guidance Increase

Lululemon Athletica (LULU 1.31%) stock gained 1.5% in Thursday's after-hours trading session, following the activewear specialist's release of a strong report for the second quarter of fiscal 2023 (which ended July 30).

The stock's rise is attributable to the quarter's results beating Wall Street's consensus estimates for both revenue and earnings, third-quarter guidance coming in higher than analysts had expected for both the top and bottom lines, and management raising its full-year guidance for revenue and earnings.

Lululemon stock's post-earnings-release gain was modest compared to what it's been in some recent quarters. That's likely largely due to the revenue and earnings beats not being as large as they sometimes are.

That said, the company's performance was still impressive, especially considering that many consumers have been paring back their spending on apparel and other discretionary products. As I wrote after the prior-quarter's earnings release, "This is likely a reflection of several factors, including that more affluent people are usually less affected by a challenging macroeconomic environment than their less-affluent counterparts."

Lululemon's key numbers 

Data source: Lululemon. GAAP = generally accepted accounting principles. Fiscal Q2 2023 ended July 30, 2023. *Calculations by author.

Gross margin was 58.8%, up 230 basis points (2.3 percentage points) from the year-ago period. 

Wall Street was looking for adjusted EPS of $2.54 on revenue of $2.17 billion. So Lululemon exceeded both expectations. The company also surpassed its own guidance, which was for adjusted EPS of $2.47 to $2.52 and revenue of $2.14 billion to $2.17 billion.

In the earnings release, CFO Meghan Frank attributed the company's stronger-than-anticipated performance to its "portfolio approach to growth, differentiated business model, and innovative product assortment."

Revenue rose 20% year over year in constant currency. Revenue growth was driven by an 11% increase in comparable sales (13% in constant currency) plus the opening of new stores over the year. Company-operated same-store sales rose 7% (9% in constant currency) and direct-to-consumer (DTC) revenue jumped 15% (17% in constant currency). Lululemon opened 10 net new stores in the quarter, bringing its total to 672 stores. 

DTC sales accounted for 40% of total sales in the quarter, down from 42% in the year-ago period. The company's strength in DTC sales contributes to its financial success, as it doesn't have to give a cut of these sales to another entity. 

Revenue growth was driven by both regions, with 11% and 52% year-over-year increases in North America and internationally, respectively. As with last quarter, Greater China drove international growth, with its revenue soaring 61%, CEO Calvin McDonald said on the earnings call.

In the first half of fiscal 2023, the company generated $522.2 million running its operations, compared with using $145.6 million in the prior-year period. It ended the quarter with $1.11 billion in cash and cash equivalents -- more than double the cash on its balance sheet at the end of the year-ago period.

Guidance issued for Q3 and raised for full-year fiscal 2023 

Data source: Lululemon. *Calculations by author.

In short, Lululemon turned in another great quarter, with the rest of the fiscal year looking bright, based on the annual guidance.