Lululemon (LULU) Q1 2023 Earnings

Lululemon on Thursday reported earnings that beat Wall Street’s sales and earnings estimates and raised its full-year guidance, supported by improvements in China and in freight costs.

The company’s shares rose more than 12% in extended trading.

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Here’s how the retailer fared first fiscal quarter compared to what Wall Street was expecting, based on a poll of analysts compiled by Refinitiv:

• Earnings per share: $2.28 vs. $1.98 expected
• Revenue: $2 billion versus $1.93 billion expected

The company’s reported net income for the three-month period ended April 30 was $290.4 million, or $2.28 per share, compared to $190 million, or $1.48 per share last year.

Revenue rose 24% to $2 billion from $1.61 billion a year earlier.

Sales in China alone rose 79% compared to the same period last year, when the country was still suffering from Covid restrictions and about a third of Lululemon’s 71 China stores were temporarily closed.

“Our Q1 results were strong as guests responded well to our product offering in all of our markets around the world. A significant acceleration in our sales trend in China, coupled with lower air freight, contributed to our better-than-planned financial performance,” CFO Meghan Frank said in a statement. “We are pleased with our momentum for the second quarter and for the full year, as reflected in our revised FY23 outlook.”

According to Refinitiv, the retailer now expects full-year sales of $9.44 billion to $9.51 billion, up from the previous range of $9.31 billion to $9.41 billion and beating Wall Street forecasts of 9 surpasses $.37 billion. For the full year, earnings per share are expected to be in the range of $11.74 to $11.94, compared to a previous range of $11.50 to $11.72. It also beat analysts’ expectations, which forecast $11.61 per share, according to Refinitiv.

Lululemon expects its second-quarter revenue to be between $2.14 billion and $2.17 billion, up about 15%. Lululemon expects diluted earnings per share to be between $2.47 and $2.52 for the period. According to Refinitiv, that forecast for the second quarter was broadly in line with Wall Street’s expectations.

The apparel retailer, which sells premium yoga pants, shoes and other athletic apparel, reported a 24% year-over-year increase in sales despite posting strong results compared to the prior-year period, which took place in a simpler macro environment.

This time last year, Lululemon had just raised its prices, but shoppers were still flocking to stores and filling their digital shopping carts. And they haven’t yet felt the pressure of ongoing inflation.

Comparable-store sales rose 13% in the most recent quarter, while StreetAccount expects growth of 8.3%. According to StreetAccount, however, direct sales to consumers rose 16% from the year-ago period, falling short of the 22.3% increase analysts had been expecting.

While DTC revenue was up year over year, it accounted for 42% of total revenue, compared to 45% in the prior-year period.

Gross margins increased 3.6 percentage points to 57.5% for the quarter. According to StreetAccount, the margin came in above the 56.7% that analysts were expecting.

While the company primarily targets higher-income consumers, who tend to be more resilient to macroeconomic pressures, retailers across the industry have cited the following: Decrease in discretionary spending and higher-priced items.