On December 7, shares of lululemon athletica inc. (NASDAQ:LULU) saw a 0.87% increase in the after-market trading session, buoyed by robust results in the third quarter of fiscal 2023. Both revenues and earnings exceeded the Consensus Estimate, showcasing a significant improvement compared to the previous year.

The company attributed these positive outcomes to its innovative product offerings and the resilience of its business model, aligning with the Power of Three X2 growth plan. Additionally, lululemon provided guidance for the fourth quarter and fiscal 2023.

Detailed Performance Highlights

Lululemon reported adjusted earnings of $2.53 per share for the fiscal third quarter, marking a 26.5% YoY increase and surpassing the Consensus Estimate of $2.27. Quarterly revenues reached $2,204.2 million, a 19% YoY increase, outpacing the Consensus Estimate of $2,188 million. Notably, net revenues grew by 12% in North America and an impressive 49% internationally.

Comparable sales also exhibited a robust performance, rising by 13% YoY and 14% on a constant-dollar basis. Within this, comparable store sales increased by 9% YoY, while e-commerce sales witnessed a 19% YoY uptick. Direct-to-consumer net revenues grew by 18%, accounting for 41% of the total net revenues.

Margins and Financials

Lululemon’s adjusted gross profit increased by 23% YoY to $1,280.4 million, exceeding estimates. The adjusted gross margin expanded by 220 basis points to 58.1%, primarily due to a 250-basis-point rise in product margin attributed to lower freight costs and reduced air freight use.

SG&A expenses of $842.8 million increased by 23.2% from the prior year but fell slightly short of estimates. The adjusted operating income rose by 24% YoY to $436.3 million, with the adjusted operating margin increasing by 80 basis points to 19.8%.

Store Expansion and Financial Position

During the fiscal third quarter, Lululemon opened 14 net new stores, bringing the total to 686 stores as of October 29, 2023. The company exited the quarter with $1,091.1 million in cash and cash equivalents and $3,525.8 million in stockholders’ equity. Inventories decreased by 4% YoY to $1,663.6 million.

Outlook and Future Projections

For the fourth quarter of fiscal 2023, Lululemon anticipates net revenues of $3.135-$3.170 billion, indicating a 13-14% YoY growth. The company expects the gross margin to expand by 90-120 basis points, driven by lower airfreight costs, offset partly by strategic investments.

Lululemon also raised its guidance for fiscal 2023, projecting net revenues of $9.55-$9.58 billion, reflecting an 18% YoY growth. The adjusted EPS is expected to be $12.34-$12.42, surpassing the previous forecast. As part of its Power of Three X2 growth plan, Lululemon aims for net revenues of $12.5 billion by 2026, signifying substantial growth from the 2021 reported figure of $6.25 billion.

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