Lululemon Athletica Inc. jumped after posting better-than-expected profit and sales in the first quarter and projecting full-year results that outpaced estimates — a sign of robust demand for the company’s pricey activewear despite emerging weakness among consumers.
Earnings and comparable sales surpassed analysts’ average estimate in the company’s fiscal first quarter. For the full year, Lululemon now expects revenue to be as high as $9.5 billion, compared with a prior estimate of as much as $9.4 billion. Guidance for the second quarter also came in above analysts’ estimates.
The results point to ongoing strength for the brand, which appears to be sidestepping the softness that has derailed other retailers at the start of the year. Lululemon shares surged 13% at 5:35 p.m. in extended New York trading. The stock has gained 2.5% this year through Wednesday’s close, compared with a 9.9% gain for the S&P 500 Index.
The company has been working down bloated merchandise stockpiles since last year. It reported that inventory rose 24% from a year ago in the first quarter, an improvement from the 50% year-over-year gain reported last quarter, though still higher than usual. Executives told analysts on an earnings call that they expect inventory levels to dip slightly in the current quarter and then to be relatively in line with sales growth in the second half of 2023.
Gross margin in the quarter surpassed the average analyst estimate. The company said lower air freight and an acceleration in Chinese sales, which jumped 79% from a year earlier, contributed to the performance.
The company plans to open 30 to 35 stores outside of the US this year, most of which will be in China. Lululemon sees continued room for international expansion and expects “balanced and very healthy growth ahead,” Chief Executive Officer Calvin McDonald told analysts.
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Lululemon’s results stand out among other apparel retailers, which largely have reported comparable-sales declines in the first quarter and noted growing economic uncertainty. That experience hasn’t been across the board, however, with brands such as Abercrombie & Fitch and Urban Outfitters-owned Anthropologie also experiencing double-digit comparable sales growth, suggesting that consumers are still willing to spend on higher-priced apparel from popular brands.
--With assistance from Jeannette Neumann.
(Updates share trading and adds details on inventory levels in fourth paragraph; China details in sixth paragraph.)
