Lululemon Continues Its Quarterly Report Winning Streak and Shows It Is Worthy of Challenging Nike

On Thursday, Lululemon Athletica Inc LULU continued its trend of beating sales and profits. Fueled by international growth, the Nike Inc NKE rival boosted its full year guidance.

Fiscal Second Quarter Highlights

For the quarter that ended on July 30th, athletic apparel retailer reported its sales rose 18% YoY to $2.21 billion, topping Refinitiv’s consensus estimate of $2.17 billion. Despite a slow down in North America where sales grew 11%, total sales were fueled by strong international growth, as markets outside North America expanded 52% while China alone increased 61%, more than doubling from last year comparable quarter’s 30%. Net income also rose at revenue’s 18% YoY pace to $341.6 million, or $2.68 per share, topping Refinitiv’s estimate of $2.54.

Both men’s category and DTC sales rose 15% as Lululemon is pushing these segments intensively as part of its growth strategy. In the reported quarter, DTC sales made 40% of the total revenue. Inventories rose 14% to $1.7 billion but the gross margin was in line with StreetAccount’s expectations at 58.8% as it got a boost from lowered freight costs.

A Lifted Outlook

For the undergoing quarter, Lululemon expects EPS in the range between $2.23 and $2.28 and revenue in the range between $2.17 billion to $2.19 billion, which are in line with Refinitiv’s expectations.

The yoga ants and sporty purses retailer is expecting full year fiscal year sales in the range between $9.51 billion to $9.57 billion, lifting its prior guidance range between $9.44 billion to $9.51 billion. Annual profit outlook is between $12.02 and $12.17 per share, also up from the prior forecast range between $11.74 and $11.94.

Lululemon’s quarterly report showed healthy and strong growth with incredible performance in China as the yoga pants and sports retailer continues pursuing its ambitious “Power of Three x2” strategy that implies doubling sales from 2021’s revenue of $6.25 billion to $12.5 billion by 2026. To achieve this goal, Lululemon is expanding its brick-and-mortar footprint, its DTC revenue like Nike and strengthening its positioning in the men’s department. Also taking a page from the Nike playbook, Lululemon recently got into footwear and is reportedly making steady progress. CEO Calvin McDonald said that although product innovation is essential to the company’s growth plan, brand awareness is also a priority that is being addressed by the ‘’Get Into It'’ campaign. Nike did it with ‘Just do It’ despite immense competition in the sports apparel segment, and it did a great job at reducing its dependence on wholesale, and until recently, it was in a league of its own. Although Lululemon does not have that level of brand strength and it just entered the footwear business, it 'got into it' and grew into a worthy opponent to Nike, with its latest reports showing it is well underway to challenge its dominance in the apparel business.

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