Lululemon Athletica Inc. (NASDAQ: LULU), a leader in the premium sportswear market, continues to show its strength even in an uncertain economic climate. With recently published quarterly results that point to growth and stability on an international scale, the company is proving that its global ambitions are realistic. Nevertheless, it faces challenges in the domestic market, which affected its outlook for the entire fiscal year.

 

Strong sales growth and stable margins

 

For the second quarter of fiscal 2024, which ended July 28, 2024, the company generated net sales of $2.4 billion, an increase of 7%. This growth was mainly supported by the international segment, where sales increased by 29 percent. In comparison, growth in America was more modest, only 1%.

 

The company's gross profit reached $1.4 billion, an increase of 9%. Gross margin improved by 80 basis points to 59.6 %. Operating profit rose 13% to $540.2 million, while operating margin increased to 22.8%. These results underscore the strength of the company's financial management, which continues to maintain high profitability.

 

Geographical expansion as a growth engine

 

One of the main drivers of growth is international expansion. Lululemon opened 10 new stores in the second quarter, bringing the total number to 721. Sales growth outside the Americas is impressive and shows potential for further expansion, especially in Asia and Europe. International sales now account for a significant portion of total revenue, and it seems that the company still has plenty of room for further growth in these markets.

 

Challenges in the North American market

 

Despite strong international growth, Lululemon faces a slowdown in its home market in North America. Weaker demand and the failure of some product innovations, such as the "Breezethrough" line of leggings, caused negative reviews and the need for a recall. This failure resulted in a decision to accelerate the launch of new products and styles in order to retain customers.

 

CEO Calvin R. McDonald emphasized that the company plans to significantly increase the pace of innovation and introduce more attractive product lines that will appeal to a wide range of customers.

 

Reduced outlook for the fiscal year

 

Due to domestic market challenges, Lululemon revised its outlook for fiscal 2024. The company now expects net sales in the range of $10.38 billion to $10.48 billion, down from its original estimate of $10.7 billion to $10.8 billion. Earnings per share are expected to be between $13.95 and $14.15, up from a previous outlook of $14.27 to $14.47. [1]

 

The move reflects weaker performance in North America and the need for further product innovations. Nevertheless, the company demonstrates the ability to adapt and manage investor expectations.

 

Strong financial management and commitment to shareholders

 

Lululemon also maintains its credibility thanks to its robust financial management. During the second quarter, the company repurchased 1.9 million shares worth $583.7 million, reaffirming its commitment to increasing shareholder value. In addition, inventories fell 14% to $1.4 billion, indicating improved inventory management and operational efficiency.

 

The future of Lululemon: A return to innovation

 

While the company faces short-term challenges, its focus on product innovation and geographic expansion suggests that it is on track for further growth. The international segment remains a strength, and the U.S. market, although slowed, still offers opportunities for optimization. With a growing focus on new styles and accelerated product launches, Lululemon has the potential to maintain its position as a leader in the premium sportswear segment.

 

The price of Lululemon Athletica's shares alone indicates that the price is undervalued[1]*, so you can buy a fundamentally very strong stock at a favorable valuation with the potential for significant growth. 2]

 

Conclusion

 

Lululemon Athletica continues to emerge as a strong investment opportunity, mainly due to its ability to adapt to challenges and take advantage of growth opportunities in international markets. While the outlook for this year is slightly downgraded, the company is proving that it has a strategy to handle short-term issues and create long-term value for its shareholders.

 

* Past performance is not a guarantee of future results.

[1,2] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which is subject to change. Such statements are not a guarantee of future performance. They involve risks and other uncertainties that are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.

 

 

https://corporate.lululemon.com/~/media/Files/L/Lululemon/investors/results-center/q2-2024-financial-supplement.pdf


[1] Lululemon Athletica Inc. stock price performance over the past five years: https://tradingeconomics.com/lulu:us