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Shares of lululemon athletica inc. (LULU - Free Report) increased 1.2% after the trading session on Aug 31, following strong second-quarter fiscal 2023 results. Both revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year.
The results were driven by strength in its business and innovative products. The company is on track with the Power of Three ×2 growth plan. It outlined its guidance for third-quarter and full-year fiscal 2023.
lululemon’s fiscal second-quarter adjusted earnings of $2.68 per share jumped 18.6% year over year and beat the Zacks Consensus Estimate of $2.53.
The Vancouver, Canada-based company’s quarterly revenues advanced 18.2% year over year to $2,209.2 million and outpaced the Zacks Consensus Estimate of $2,169 million. On a constant-dollar basis, revenues improved 20%.
Net revenues grew 11% in North America and 52% internationally.
Total comparable sales rose 11% year over year and 13% on a constant-dollar basis. Comparable store sales climbed 7% year over year and 9% on a constant-dollar basis. Comps were driven by more than 20% traffic growth at stores and e-commerce. Our estimate for comparable store sales growth was pegged at 9.5% on a constant-dollar basis.
Direct-to-consumer net revenues climbed 15% (up 17% on a constant-dollar basis). The metric accounted for 40% of total net revenues compared with 42% in the second quarter of fiscal 2022.
The Zacks Rank #3 (Hold) company’s shares have rallied 4.3% in the past three months compared with the industry’s growth of 0.1%.
lululemon athletica inc. Price, Consensus and EPS Surprise
Gross profit improved 23% year over year to $1,298.5 million and outshined our estimate of $1,262.4 million. However, gross margin expanded 230 basis points (bps) to 58.8% due to a 330 bps rise in product margin from lower freight. We expected the gross margin to expand by 210 bps to 58.6% for the quarter under review.
Markdowns remained flat year over year. The impact of product and supply-chain costs along with occupancy deleveraged 70 bps due to investments in product development and supply chain. Foreign exchange also had 30 bps of unfavorable impact.
SG&A expenses of $817.4 million increased 23.4% from the year-ago quarter and beat our estimate of $809.2 million. SG&A expenses, as a percentage of net revenues, were 37%, up 160 bps from 35.4% reported in the prior-year quarter. We expected the metric to extend by 210 bps to 37.5% for the quarter.
Income from operations jumped 19% year over year to $479.3 million and surpassed our estimate of $451.3 million. Operating margin rose to 21.7% from the prior-year quarter’s 21.5%.
Store Update
In the fiscal second quarter, LULU opened 10 net new stores and completed four store optimizations. Specifically, it opened 12 stores and closed two stores during the quarter. As of Jul 30, 2023, it operated 672 stores.
In third-quarter fiscal 2023, it expects to open 23 net new company-operated stores. Management expects to open 55 net new company-operated stores in fiscal 2023 along with the completion of 25 co-located remodels.
Financials
lululemon exited the quarter with cash and cash equivalents of $1,107.5 million, and stockholders’ equity of $3,533.5 million. At the end of the quarter, it had $393.6 million remaining under its committed revolving credit facility. Its inventories grew 14% year over year to $1,660.8 million.
In the quarter under review, management repurchased 0.5 million shares at an average rate of $370.99 per share. As of Jul 30, 2023, it had $454 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the third quarter of fiscal 2023, management anticipates net revenues in the range of $2.165-$2.190 billion, indicating 17-18% year-over-year growth. Gross margin is expected to expand 160-180 bps, driven by lower airfreight costs. This is likely to be partly offset by strategic investments to support growth, including supply chain, distribution centers, product teams, and modest deleverage on occupancy and depreciation.
SG&A, as a percentage of sales, is likely to deleverage by 200-220 bps year over year. Operating margin is predicted to contract 40 bps year over year. The company projects EPS of $2.23-$2.28 for the fiscal third quarter. It estimates an effective tax rate of 30.5% for the ongoing quarter.
LULU also revised guidance for fiscal 2023. It anticipates net revenues of $9.51-$9.57 billion compared with the prior mentioned $9.44-$9.51 billion. The metric indicates year-over-year growth of 17-18%.
It projects EPS of $12.02-$12.17, higher than $11.74-$11.94 forecast earlier. The figure suggests a jump from $10.07 reported in fiscal 2022.
It estimates an effective tax rate of 30% for fiscal 2023. SG&A, as a percentage of sales, is likely to deleverage by 150-170 bps year over year. It expects operating margin for fiscal 2023 to rise 40-60 bps from the year-ago levels.
Management forecasts fiscal third-quarter inventory growth to be in the high-single to low-double-digit range. It anticipates inventory growth to be in line with sales growth in the fourth-quarter fiscal 2023.
lululemon expects capital expenditure of $670-$690 million for fiscal 2023, suggesting 7% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues. Earlier, it predicted a capital expenditure of $660-$680 million for fiscal 2023.
As part of Power of Three X2 growth plan, LULU estimates net revenues of $12.5 billion by 2026, implying significant growth from the 2021 reported figure of $6.25 billion.
Guess?, which designs, markets, distributes and licenses lifestyle collections of apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GES’ current financial-year revenues and EPS suggests growth of 3.3% and 8.8%, respectively, from the year-ago reported figure. Guess? has a trailing four-quarter earnings surprise of 43.4%, on average.
Royal Caribbean flaunts a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 28.5%, on average.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 54.5% and 180.3%, respectively, from the year-ago period’s reported levels.
Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter earnings surprise of 19.9%, on average.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings implies rises of 12.9% and 11.2% from the year-ago period’s reported figure.
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lululemon (LULU) Tops on Q2 Earnings & Sales, Raises FY23 View
Shares of lululemon athletica inc. (LULU - Free Report) increased 1.2% after the trading session on Aug 31, following strong second-quarter fiscal 2023 results. Both revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year.
The results were driven by strength in its business and innovative products. The company is on track with the Power of Three ×2 growth plan. It outlined its guidance for third-quarter and full-year fiscal 2023.
lululemon’s fiscal second-quarter adjusted earnings of $2.68 per share jumped 18.6% year over year and beat the Zacks Consensus Estimate of $2.53.
The Vancouver, Canada-based company’s quarterly revenues advanced 18.2% year over year to $2,209.2 million and outpaced the Zacks Consensus Estimate of $2,169 million. On a constant-dollar basis, revenues improved 20%.
Net revenues grew 11% in North America and 52% internationally.
Total comparable sales rose 11% year over year and 13% on a constant-dollar basis. Comparable store sales climbed 7% year over year and 9% on a constant-dollar basis. Comps were driven by more than 20% traffic growth at stores and e-commerce. Our estimate for comparable store sales growth was pegged at 9.5% on a constant-dollar basis.
Direct-to-consumer net revenues climbed 15% (up 17% on a constant-dollar basis). The metric accounted for 40% of total net revenues compared with 42% in the second quarter of fiscal 2022.
The Zacks Rank #3 (Hold) company’s shares have rallied 4.3% in the past three months compared with the industry’s growth of 0.1%.
lululemon athletica inc. Price, Consensus and EPS Surprise
lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote
Margins
Gross profit improved 23% year over year to $1,298.5 million and outshined our estimate of $1,262.4 million. However, gross margin expanded 230 basis points (bps) to 58.8% due to a 330 bps rise in product margin from lower freight. We expected the gross margin to expand by 210 bps to 58.6% for the quarter under review.
Markdowns remained flat year over year. The impact of product and supply-chain costs along with occupancy deleveraged 70 bps due to investments in product development and supply chain. Foreign exchange also had 30 bps of unfavorable impact.
SG&A expenses of $817.4 million increased 23.4% from the year-ago quarter and beat our estimate of $809.2 million. SG&A expenses, as a percentage of net revenues, were 37%, up 160 bps from 35.4% reported in the prior-year quarter. We expected the metric to extend by 210 bps to 37.5% for the quarter.
Income from operations jumped 19% year over year to $479.3 million and surpassed our estimate of $451.3 million. Operating margin rose to 21.7% from the prior-year quarter’s 21.5%.
Store Update
In the fiscal second quarter, LULU opened 10 net new stores and completed four store optimizations. Specifically, it opened 12 stores and closed two stores during the quarter. As of Jul 30, 2023, it operated 672 stores.
In third-quarter fiscal 2023, it expects to open 23 net new company-operated stores. Management expects to open 55 net new company-operated stores in fiscal 2023 along with the completion of 25 co-located remodels.
Financials
lululemon exited the quarter with cash and cash equivalents of $1,107.5 million, and stockholders’ equity of $3,533.5 million. At the end of the quarter, it had $393.6 million remaining under its committed revolving credit facility. Its inventories grew 14% year over year to $1,660.8 million.
In the quarter under review, management repurchased 0.5 million shares at an average rate of $370.99 per share. As of Jul 30, 2023, it had $454 million remaining under its recently authorized $1 billion share repurchase program.
Outlook
For the third quarter of fiscal 2023, management anticipates net revenues in the range of $2.165-$2.190 billion, indicating 17-18% year-over-year growth. Gross margin is expected to expand 160-180 bps, driven by lower airfreight costs. This is likely to be partly offset by strategic investments to support growth, including supply chain, distribution centers, product teams, and modest deleverage on occupancy and depreciation.
SG&A, as a percentage of sales, is likely to deleverage by 200-220 bps year over year. Operating margin is predicted to contract 40 bps year over year. The company projects EPS of $2.23-$2.28 for the fiscal third quarter. It estimates an effective tax rate of 30.5% for the ongoing quarter.
LULU also revised guidance for fiscal 2023. It anticipates net revenues of $9.51-$9.57 billion compared with the prior mentioned $9.44-$9.51 billion. The metric indicates year-over-year growth of 17-18%.
It projects EPS of $12.02-$12.17, higher than $11.74-$11.94 forecast earlier. The figure suggests a jump from $10.07 reported in fiscal 2022.
It estimates an effective tax rate of 30% for fiscal 2023. SG&A, as a percentage of sales, is likely to deleverage by 150-170 bps year over year. It expects operating margin for fiscal 2023 to rise 40-60 bps from the year-ago levels.
Management forecasts fiscal third-quarter inventory growth to be in the high-single to low-double-digit range. It anticipates inventory growth to be in line with sales growth in the fourth-quarter fiscal 2023.
lululemon expects capital expenditure of $670-$690 million for fiscal 2023, suggesting 7% of revenues. This is in line with the company’s power of three X2 initiative’s target of 7-9% of revenues. Earlier, it predicted a capital expenditure of $660-$680 million for fiscal 2023.
As part of Power of Three X2 growth plan, LULU estimates net revenues of $12.5 billion by 2026, implying significant growth from the 2021 reported figure of $6.25 billion.
Stocks to Consider
Some better-ranked stocks from the Zacks Consumer Discretionary sector are Guess?, Inc. (GES - Free Report) , Royal Caribbean (RCL - Free Report) and Crocs (CROX - Free Report) .
Guess?, which designs, markets, distributes and licenses lifestyle collections of apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GES’ current financial-year revenues and EPS suggests growth of 3.3% and 8.8%, respectively, from the year-ago reported figure. Guess? has a trailing four-quarter earnings surprise of 43.4%, on average.
Royal Caribbean flaunts a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 28.5%, on average.
The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases of 54.5% and 180.3%, respectively, from the year-ago period’s reported levels.
Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). CROX has a trailing four-quarter earnings surprise of 19.9%, on average.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings implies rises of 12.9% and 11.2% from the year-ago period’s reported figure.