Lululemon Stock Soars on Earnings Beat and Raised Full-Year Forecast

Lululemon Stock Soars on Earnings Beat and Raised Full-Year Forecast

Key Highlights:

Q3 revenue and earnings surpassed expectations.

Full-year sales and profit forecasts for 2024 were revised upward.

North American sales growth remains a concern amid rising competition.

Lululemon (LULU) shares jumped over 17% in early Friday trading after the company reported better-than-expected third-quarter earnings and revenue on Thursday. Revenue rose to $2.4 billion, exceeding both last year's $2.2 billion and analyst expectations of $2.36 billion. Earnings per share (EPS) also beat estimates, coming in at $2.87 compared to the projected $2.75 and the $2.53 reported a year ago.

The retailer raised its full-year revenue forecast to $10.45-$10.49 billion, up from the previous $10.38-$10.48 billion range. It also increased its full-year EPS guidance to $14.08-$14.16, exceeding earlier projections of $13.95-$14.15. For Q4, the company anticipates revenue of $3.48-$3.51 billion and EPS of $5.56-$5.64, slightly below consensus estimates of $5.70.

Lululemon CEO Calvin McDonald highlighted the brand's global momentum, stating, “Our performance in the third quarter shows the enduring strength of Lululemon globally. Looking to the future, we are pleased with the start of our holiday season and remain focused on accelerating our U.S. business and growing brand awareness worldwide.”

Margin Gains and Buyback Program

Gross margins improved significantly, rising 150 basis points to 58.5% in Q3, building on an 80-basis-point increase in Q2. Additionally, Lululemon approved a $1 billion increase to its stock buyback program on December 3, signaling confidence in its long-term growth.

Competition and Market Challenges

Despite the strong earnings, Lululemon faces ongoing challenges in North America, where sales growth has slowed amid stiff competition from trendier brands like Alo and Vuori. The stock has struggled in 2024, falling over 30% year-to-date and underperforming the Consumer Discretionary sector, which is up 27% during the same period.

Analysts have also flagged increased short interest in the stock, making its long-term fundamentals a critical focus for investors. Still, with strong international performance and a positive start to the holiday season, Lululemon appears poised for recovery heading into 2024.