Lululemon Athletica (LULU): Here’s a look at the apparel company’s near-term expectations

Shares of Lululemon Athletica (NASDAQ: LULU) were down on Monday. The stock has dropped 16% year-to-date and 19% over the past 12 months. Last week, the company delivered strong results for the third quarter of 2022, which surpassed market projections. Here’s a look at its expectations for the near term:

Sales

For the third quarter of 2022, Lululemon’s net revenue increased 28% year-over-year to $1.9 billion. Net revenues from North America were up 26% while international revenues grew 41%. Total comparable sales rose 22%, with comparable store sales increasing 14%. Direct to consumer net revenue was up 31% and represented 41% of total revenue in the quarter.

On its quarterly conference call, the company said it saw strong performance during Thanksgiving with Black Friday marking a record in terms of revenue and traffic driven by results in North America and international markets. Lululemon continues to gain market share as well. While the adult active apparel industry saw its US revenue drop by 4% during the third quarter, Lululemon gained 1.5 points of market share in the US.

For the fourth quarter of 2022, Lululemon expects revenue to range between $2.60-2.65 billion, reflecting a YoY growth of 22-25%. For the full year of 2022, revenue is estimated to be $7.94-7.99 billion. The full-year outlook assumes that the company’s ecommerce business grows around 30% compared to last year.

Profitability

In Q3 2022, Lululemon delivered EPS of $2.00 which was up from $1.44 last year. Adjusted EPS in the year-ago quarter was $1.62. Gross margin during the quarter decreased 130 basis points to 55.9%. The gross margin result included a 40-basis point decrease in product margin driven mainly by higher markdowns and inventory provisions. Operating margin rose 120 basis points to 19% while adjusted operating margin decreased 40 basis points.

For Q4 2022, Lululemon expects adjusted EPS to be $4.20-4.30 compared to adjusted EPS of $3.37 a year ago. The company expects gross margin in the quarter to increase 10-20 basis points from the same period last year. Product margin is expected to see a YoY improvement driven by lower airfreight expense.

For the full year of 2022, Lululemon expects adjusted EPS of $9.87-9.97 versus adjusted EPS of $7.79 in 2021. Gross margin is expected to decrease between 100 and 140 basis points versus last year. Adjusted operating margin for the full year is expected to be approx. flat versus last year.

Stores

Lululemon ended the third quarter with a total of 623 stores across the globe. The company opened 23 net new stores during the quarter. Lululemon expects to open around 30 net new company-operated stores in the fourth quarter of 2022. For the full year of 2022, the company now expects to open 79 net new company-operated stores, up from the prior guidance of 75. The new store openings will include 45-50 stores in international markets.

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