Lululemon Athletica stock popped 6% on Friday following the activewear retailer's release on the prior afternoon of a strong report for the second quarter of fiscal 2023. For the quarter ended July 30, revenue jumped 18% year over year to $2.21 billion. Adjusted net income surged 22% to $341.6 million, which translated to earnings per share (EPS) increasing 22% 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, as it did last quarter, management raised its revenue and earnings guidance for fiscal year 2023.
Earnings releases tell only part of the story. Following are three key things from the company's Q2 earnings call that investors should know
1. Sales strength continues to be broad-based
One of the biggest factors in Lululemon's success is that its sales strength is broad-based across categories, geographic regions, and sales channels. The focus here is on categories. From CEO Calvin McDonald's remarks:
When looking at product, we posted strong double-digit growth across women's, men's, and accessories as we bring newness and innovation into our assortment. [W]omen's increased 16%, men's was up 15%, and accessories increased 44%.
In the women's category, growth was driven by the company's key franchises of Scuba and Define (both include jackets and hoodies) and Dance Studio jogger (think tapered-leg sweatpants but thinner fabric). Lululemon also continues to see strength across its play categories of tennis and golf.
In men's, its ABC franchise (pants) was a key growth driver. In keeping with its strategy of growing its popular franchises to "meet the unmet needs" (a phrase that management uses often) of its customers, the company has expanded ABC to include four fits and three proprietary fabrics.
In accessories, Lululemon's bag assortment continued to perform well, including its crossbody styles, backpacks, and small pouches. Notably, its popular Everywhere Belt Bag posted double-digit percentage revenue growth, which is particularly impressive given its robust performance in the year-ago period. The company's accessories team expanded its assortment of this product "across multiple sizes, color waves, prints, and patterns, and the guests are responding incredibly well," McDonald said.
2. A huge opportunity to fuel growth by increasing brand awareness
From McDonald's remarks:
[W]e also have a real opportunity to increase our brand awareness. [O]ur unaided brand awareness is still only 25% in the United States. And with the exception of the U.K. and Australia, our unaided awareness remains in the single digits in every market in which we operate outside of North America.
Unaided brand awareness is the percentage of consumers in a survey who are aware of a brand without being assisted.
The fact that Lululemon's unaided brand awareness is so low points to a huge growth opportunity both in the U.S. and especially internationally. The company is already pumping out great quarterly growth for both sales and profits. As more consumers become aware of the brand, some will become customers.
In 2023, Lululemon has accelerated its efforts to introduce more consumers to its brand, with McDonald saying the company is seeing results in key growth markets. It continues to employ its grassroots approach to building consumer awareness but is also increasing the number and frequency of large-scale events and brand campaigns.
3. Gained market share in the U.S.
From McDonald's remarks:
Within North America, we remain pleased with the underlying strength of the business with double-digit growth in Quarter 2 ... and we continue to gain market share. In Quarter 2, the adult active apparel industry decreased its U.S. revenue, compared to the same period last year. Over this time period, Lululemon gained 1.3 points of market share in the U.S. with gains in both men's and women's.
The data cited in the quote is from Circana, a leading consumer behavior company, which was formed from the August 2022 merger of Information Resources, Inc. (IRI) and The NPD Group (NPD).
As a point of reference, athletic footwear and apparel giant Nike's North America apparel revenue declined 2% year over year in its most recently reported quarter, which ended May 31. While its quarter doesn't completely overlap with Lululemon's, this data suggests it's possible that Lululemon could be taking activewear market share from Nike in the U.S.
