Lululemon Athletica (LULU 1.31%) stock dropped 15.8% on Friday, following the activewear specialist's release on the prior afternoon of its report for the fourth quarter of fiscal 2023, which ended Jan. 28. (You read these numbers correctly -- fiscal year 2023 includes about a month of calendar year 2024.)
The stock's decline is attributable to guidance, not to the fourth-quarter's results. Management's outlook for the first quarter and full year of fiscal 2024 was lighter than Wall Street had expected for both revenue and earnings. The fourth-quarter's results, on the other hand, beat the analyst consensus estimates for the top and bottom lines.
For some time, consumers have been cutting back their spending on apparel and other discretionary products due in part to uncertainties about the macroeconomic environment. They've also been shifting their disposable income spending more toward services and experiences since the pandemic subsided. Up until now, Lululemon has managed to perform very well despite the challenging macro environment for its industry. However, its fourth-quarter results in its core Americas market and its outlook suggest the company hasn't fully escaped the macro headwinds that others in its industry have been facing in recent years.
Lululemon's key quarterly numbers
| Metric | Fiscal Q4 2022 | Fiscal Q4 2023 | Change |
|---|---|---|---|
| Revenue | $2.772 billion | $3.205 billion | 16% |
| GAAP operating income | $314.4 million | $913.9 million | 191% |
| Adjusted operating income | $785.3 million | $913.9 million | 16% |
| GAAP net income | $119.8 million | $669.5 million | 459%* |
| Adjusted net income | $562.5 million | $669.5 million | 19%* |
| GAAP earnings per share (EPS) | $0.94 | $5.29 | 463%* |
| Adjusted EPS | $4.40 | $5.29 | 20%* |
Data source: Lululemon. GAAP = generally accepted accounting principles. Fiscal Q4 2023 ended Jan. 28, 2024. *Calculations by author.
Adjusted gross margin was 59.4%, up from 57.4% in the year-ago period.
Wall Street was looking for adjusted EPS of $5.00 on revenue of $3.19 billion. So Lululemon surpassed both expectations. It also topped its own guidance, which was for revenue of $3.135 billion to $3.170 billion and adjusted EPS of $4.85 to $4.93.
Year-over-year revenue growth was driven by a 12% increase in comparable sales plus the opening of new stores over the year. Company-operated same-store sales rose 5% and e-commerce revenue jumped 17%. Lululemon opened 25 net new stores in the quarter, bringing its total at fiscal year-end to 711 stores.
Regionally, revenue growth was driven by the international region, whose revenue surged 54%, powered by Mainland China's 78% increase. The company's core -- and much more mature -- Americas region's revenue grew 9%. (Americas was formerly called the North America region.)
Revenue growth in the Americas business has been slowing. In the fiscal third quarter, this region's revenue rose 12% year over year, and in the second quarter, it increased 11%.
In fiscal 2023, Lululemon generated $2.3 billion running its operations, up 138% from fiscal 2022. It ended the year with $2.2 billion in cash and cash equivalents, up from $1.2 billion at the end of the prior year.
Guidance
Management's outlook for the first quarter and full year of fiscal 2024 was lighter than Wall Street had expected for both revenue and earnings. The entire guidance range for three of the four metrics were below the analyst consensus estimate, while the midpoint (not the entire range) of the fiscal 2024 adjusted EPS guidance range was lower than the consensus.
| Metric | Guidance | Wall Street's Consensus Estimate | Growth Implied by Guidance (YOY) |
|---|---|---|---|
| Fiscal Q1 2024 revenue | $2.175 billion to $2.200 billion | $2.25 billion | 9% to 10% |
| Fiscal Q1 2024 adjusted EPS | $2.35 to $2.40 | $2.55 | 3% to 5%* |
| Fiscal 2024 revenue | $10.7 billion to $10.8 billion | $10.9 billion | 11% to 12% |
| Fiscal 2024 adjusted EPS | $14.00 to $14.20 (midpoint $14.10) | $14.13 | 10% to 11%* |
Data source: Lululemon. Fiscal 2024 ends Feb. 2, 2025. YOY = year over year. *Calculations by author.
In short, Lululemon turned in strong results for fiscal Q4 2023. And while guidance is somewhat light for fiscal Q1 2024, it's still quite solid for the full year.
Long-term investors should not place much importance on short-term results, which can fluctuate for good reasons and reasons outside a company's control.
