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Shares of lululemon athletica inc. (LULU - Free Report) gained 0.87% in the after-market trading session on Dec 7, following the strong third-quarter fiscal 2023 results. Revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year.
The results were driven by innovative product offerings and the strength of its business model. The company has been on track with the Power of Three X2 growth plan. It outlined its guidance for fourth-quarter and fiscal 2023.
Top & Bottom Lines in Detail
lululemon’s fiscal third-quarter adjusted earnings of $2.53 per share jumped 26.5% year over year and beat the Zacks Consensus Estimate of $2.27.
The Vancouver, Canada-based company’s quarterly revenues advanced 19% year over year to $2,204.2 million and outpaced the Zacks Consensus Estimate of $2,188 million. Net revenues grew 12% in North America and 49% internationally.
Total comparable sales rose 13% year over year and 14% on a constant-dollar basis. Comparable store sales climbed 9% year over year and e-commerce sales increased 19% year over year. Our estimate for comparable store sales growth was pegged at 9.3% on a constant-dollar basis.
Direct-to-consumer net revenues climbed 18% (up 19% on a constant-dollar basis). The metric accounted for 41% of the total net revenues, in line with the third quarter of fiscal 2022.
The Zacks Rank #3 (Hold) company’s shares have rallied 42.4% in the past year compared with the industry’s growth of 11.4%.
Image Source: Zacks Investment Research
Margins
Adjusted gross profit improved 23% year over year to $1,280.4 million and outpaced our estimate of $1,251.5 million. Also, the adjusted gross margin expanded 220 basis points (bps) to 58.1% due to a 250-bps rise in the product margin from lower freight costs and lower air freight use. We expected the adjusted gross margin to expand 160 bps to 57.5% for the quarter under review.
SG&A expenses of $842.8 million increased 23.2% from the year-ago quarter and lagged our estimate of $844.6 million. SG&A expenses, as a percentage of net revenues, were 38.2%, up 140 bps from the 36.8% reported in the prior-year quarter. We expected the metric to expand 200 bps to 38.8% for the quarter.
Adjusted operating income jumped 24% year over year to $436.3 million and surpassed our estimate of $405.1 million. We note that the adjusted operating margin rose 80 bps year over year to 19.8% in the quarter under review.
Store Update
In the fiscal third quarter, LULU opened 14 net new stores, including 15 store openings and closure of one, and completed eight store optimizations. As of Oct 29, 2023, it operated 686 stores.
In fourth-quarter fiscal 2023, it expects to open 25 company-operated stores. Management expects to open 55 company-operated stores in fiscal 2023, along with the completion of 25-30 co-located remodels.
Financials
lululemon exited the quarter with cash and cash equivalents of $1,091.1 million, and stockholders’ equity of $3,525.8 million. At the end of the quarter, it had $393.4 million remaining under its committed revolving credit facility. Its inventories decreased 4% year over year to $1,663.6 million.
In the quarter under review, management repurchased 0.6 million shares at an average rate of $380.88 per share. As of Oct 29, 2023, it had $243.2 million remaining under its previously authorized share repurchase program. On Nov 29, 2023, the company approved an additional stock repurchase program for up to $1 billion of the company's common shares.
Outlook
For the fourth quarter of fiscal 2023, management anticipates net revenues of $3.135-$3.170 billion, indicating 13-14% year-over-year growth.
The gross margin is expected to expand 90-120 bps, driven by lower airfreight costs. This is likely to be partly offset by strategic investments to support growth, including investments in its supply chains, distribution centers and product teams, and modest deleverage on occupancy and depreciation.
SG&A, as a percentage of sales, is likely to deleverage by 160-190 bps year over year. The operating margin is predicted to contract 70 bps year over year. The adjusted EPS in the fourth quarter is expected to be $4.85-$4.93 per share, whereas it reported $4.40 a year ago. It estimates an effective tax rate of 30% for the fourth quarter.
LULU also raised the guidance for fiscal 2023. It anticipates net revenues of $9.55-$9.58 billion compared with the prior mentioned $9.51-$9.57 billion. The metric indicates year-over-year growth of 18%.
The company projects an adjusted EPS of $12.34-$12.42, higher than the earlier forecast of $12.02-$12.17. The estimate suggests a jump from the $10.07 reported in fiscal 2022.
LULU anticipates an effective tax rate of 29.5% for fiscal 2023. SG&A, as a percentage of sales, is likely to deleverage by 120-140 bps year over year. It expects the fiscal 2023 operating margin to rise 70 bps from the year-ago reported level.
lululemon expects a 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.
As part of the 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
A few better-ranked stocks are Abercrombie & Fitch Co. (ANF - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) and American Eagle Outfitters Inc. (AEO - Free Report) .
Abercrombie operates as a specialty retailer of premium, high-quality casual apparel. It currently sports a Zacks Rank #1 (Strong Buy). The company recorded an EPS surprise of 60.5% in the last reported quarter.
The Zacks Consensus Estimate for Abercrombie’s current fiscal-year sales suggests growth of 12.8% from the year-ago reported number. ANF has a trailing four-quarter earnings surprise of 713%, on average.
Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It has a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Deckers’ current fiscal-year sales and earnings suggests growth of 11.4% and 20.9%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear for men and women. It currently has a Zacks Rank #2.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 39.2% and 3.9%, respectively, from the previous year’s reported numbers. AEO has a trailing four-quarter average earnings surprise of 23%.
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lululemon (LULU) Tops on Q3 Earnings & Sales, Raises FY23 View
Shares of lululemon athletica inc. (LULU - Free Report) gained 0.87% in the after-market trading session on Dec 7, following the strong third-quarter fiscal 2023 results. Revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year.
The results were driven by innovative product offerings and the strength of its business model. The company has been on track with the Power of Three X2 growth plan. It outlined its guidance for fourth-quarter and fiscal 2023.
Top & Bottom Lines in Detail
lululemon’s fiscal third-quarter adjusted earnings of $2.53 per share jumped 26.5% year over year and beat the Zacks Consensus Estimate of $2.27.
The Vancouver, Canada-based company’s quarterly revenues advanced 19% year over year to $2,204.2 million and outpaced the Zacks Consensus Estimate of $2,188 million. Net revenues grew 12% in North America and 49% internationally.
Total comparable sales rose 13% year over year and 14% on a constant-dollar basis. Comparable store sales climbed 9% year over year and e-commerce sales increased 19% year over year. Our estimate for comparable store sales growth was pegged at 9.3% on a constant-dollar basis.
Direct-to-consumer net revenues climbed 18% (up 19% on a constant-dollar basis). The metric accounted for 41% of the total net revenues, in line with the third quarter of fiscal 2022.
The Zacks Rank #3 (Hold) company’s shares have rallied 42.4% in the past year compared with the industry’s growth of 11.4%.
Image Source: Zacks Investment Research
Margins
Adjusted gross profit improved 23% year over year to $1,280.4 million and outpaced our estimate of $1,251.5 million. Also, the adjusted gross margin expanded 220 basis points (bps) to 58.1% due to a 250-bps rise in the product margin from lower freight costs and lower air freight use. We expected the adjusted gross margin to expand 160 bps to 57.5% for the quarter under review.
SG&A expenses of $842.8 million increased 23.2% from the year-ago quarter and lagged our estimate of $844.6 million. SG&A expenses, as a percentage of net revenues, were 38.2%, up 140 bps from the 36.8% reported in the prior-year quarter. We expected the metric to expand 200 bps to 38.8% for the quarter.
Adjusted operating income jumped 24% year over year to $436.3 million and surpassed our estimate of $405.1 million. We note that the adjusted operating margin rose 80 bps year over year to 19.8% in the quarter under review.
Store Update
In the fiscal third quarter, LULU opened 14 net new stores, including 15 store openings and closure of one, and completed eight store optimizations. As of Oct 29, 2023, it operated 686 stores.
In fourth-quarter fiscal 2023, it expects to open 25 company-operated stores. Management expects to open 55 company-operated stores in fiscal 2023, along with the completion of 25-30 co-located remodels.
Financials
lululemon exited the quarter with cash and cash equivalents of $1,091.1 million, and stockholders’ equity of $3,525.8 million. At the end of the quarter, it had $393.4 million remaining under its committed revolving credit facility. Its inventories decreased 4% year over year to $1,663.6 million.
In the quarter under review, management repurchased 0.6 million shares at an average rate of $380.88 per share. As of Oct 29, 2023, it had $243.2 million remaining under its previously authorized share repurchase program. On Nov 29, 2023, the company approved an additional stock repurchase program for up to $1 billion of the company's common shares.
Outlook
For the fourth quarter of fiscal 2023, management anticipates net revenues of $3.135-$3.170 billion, indicating 13-14% year-over-year growth.
The gross margin is expected to expand 90-120 bps, driven by lower airfreight costs. This is likely to be partly offset by strategic investments to support growth, including investments in its supply chains, distribution centers and product teams, and modest deleverage on occupancy and depreciation.
SG&A, as a percentage of sales, is likely to deleverage by 160-190 bps year over year. The operating margin is predicted to contract 70 bps year over year. The adjusted EPS in the fourth quarter is expected to be $4.85-$4.93 per share, whereas it reported $4.40 a year ago. It estimates an effective tax rate of 30% for the fourth quarter.
LULU also raised the guidance for fiscal 2023. It anticipates net revenues of $9.55-$9.58 billion compared with the prior mentioned $9.51-$9.57 billion. The metric indicates year-over-year growth of 18%.
The company projects an adjusted EPS of $12.34-$12.42, higher than the earlier forecast of $12.02-$12.17. The estimate suggests a jump from the $10.07 reported in fiscal 2022.
LULU anticipates an effective tax rate of 29.5% for fiscal 2023. SG&A, as a percentage of sales, is likely to deleverage by 120-140 bps year over year. It expects the fiscal 2023 operating margin to rise 70 bps from the year-ago reported level.
lululemon expects a 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.
As part of the 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
A few better-ranked stocks are Abercrombie & Fitch Co. (ANF - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) and American Eagle Outfitters Inc. (AEO - Free Report) .
Abercrombie operates as a specialty retailer of premium, high-quality casual apparel. It currently sports a Zacks Rank #1 (Strong Buy). The company recorded an EPS surprise of 60.5% in the last reported quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Abercrombie’s current fiscal-year sales suggests growth of 12.8% from the year-ago reported number. ANF has a trailing four-quarter earnings surprise of 713%, on average.
Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It has a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Deckers’ current fiscal-year sales and earnings suggests growth of 11.4% and 20.9%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 26.3%, on average.
American Eagle Outfitters is a specialty retailer of casual apparel, accessories and footwear for men and women. It currently has a Zacks Rank #2.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 39.2% and 3.9%, respectively, from the previous year’s reported numbers. AEO has a trailing four-quarter average earnings surprise of 23%.