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lululemon (LULU) Q1 Earnings and Sales Beat, Stock Gains

Shares of lululemon athletica inc. LULU jumped more than 13% after the trading session on Jun 1, following strong first-quarter fiscal 2023 results. Both revenues and earnings surpassed the Zacks Consensus Estimate and improved year over year.

The results were driven by the continued business momentum and innovative products. The company is on track with the Power of Three ×2 growth plan. It outlined its guidance for the second quarter and fiscal 2023.

lululemon’s fiscal first-quarter adjusted earnings of $2.28 per share increased 54.1% year over year and beat the Zacks Consensus Estimate of $1.97.

The Vancouver, Canada-based company’s quarterly revenues advanced 24% year over year to $2,001 million and surpassed the Zacks Consensus Estimate of $1,925 million. On a constant-dollar basis, revenues improved 27%.

The company’s net revenues grew 17% in North America and 60% internationally.

lululemon’s total comparable sales rose 14% year over year and 17% on a constant-dollar basis. Comparable store sales grew 13% year over year and 16% on a constant-dollar basis. Comps were driven by robust traffic trends in stores and e-commerce, with more than 30% traffic growth at stores and e-commerce.

Direct-to-consumer net revenues climbed 16% (up 18% on a constant-dollar basis). In the digital channel, revenues accounted for 42% of the company’s net revenues compared with 45% in the first quarter of fiscal 2022.

 

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The Zacks Rank #3 (Hold) company’s shares have rallied 3.7% in the past three months against the industry’s decline of 8.1%.

Margins

The gross profit improved 32% year over year to $1,150.8 million and beat our estimate of $1,093.3 million. However, the gross margin expanded 360 basis points (bps) to 57.5% due to a 430-bps increase in product margin from lower airfreight and regional mix. Markdowns remained flat year over year while occupancy and depreciation leveraged 10 basis points in the quarter. This was partly offset by a 30-bps increase in product and supply-chain costs, driven by ongoing investment in product development and supply chain.

SG&A expenses of $747.5 million decreased 23% from the year-ago quarter and beat our estimate of $742.2 million. SG&A expenses, as a percentage of net revenues, were 37.4%, down 30 bps from the 37.7% reported in the prior-year quarter

Income from operations jumped 54% year over year to $401.4 million and surpassed our estimate of $349 million. The operating margin rose to 20.1% from the prior-year quarter’s 16.1%.

Store Update

In the fiscal first quarter, the company opened seven net new stores and completed three store optimizations. Meanwhile, it closed three stores. As of Apr 30, 2023, LULU operated 662 stores.

In second-quarter fiscal 2023, the company expects to open nine net new company-operated stores. Management expects to open 50 net new company-operated stores in fiscal 2023, along with the completion of 25 co-located remodels.

Financials

lululemon exited the quarter with cash and cash equivalents of $950.6 million, and stockholders’ equity of $3,320.1 million. At the end of the quarter, the company had $393.5 million remaining under its committed revolving credit facility. At the end of the fiscal first quarter, its inventories grew 24% year over year to $1,580.3 million.

In the first quarter of fiscal 2023, management repurchased 0.3 million shares at an average rate of $336.4 per share. As of Apr 30, 2023, the company had $646 million remaining under its recently authorized $1-billion share repurchase program.

lululemon athletica inc. Price, Consensus and EPS Surprise

 

lululemon athletica inc. price-consensus-eps-surprise-chart | lululemon athletica inc. Quote

Outlook

For the second quarter of fiscal 2023, management anticipates net revenues of $2.14-$2.17 billion, indicating 15% year-over-year growth. The gross margin is expected to expand 200-220 bps, driven by lower airfreight costs, offset partly by strategic investments to support growth, including supply chain, distribution centers, and product teams, as well as modest deleverage on occupancy and depreciation.

SG&A, as a percentage of sales, is likely to deleverage by 190-210 bps year over year. The operating margin is predicted to expand 10 bps year over year. The company projects EPS of $2.47-$2.52 for the fiscal second quarter. It estimates an effective tax rate of 30% for the quarter.

LULU also provided guidance for fiscal 2023. It anticipates net revenues of $9.44-$9.51 billion, indicating year-over-year growth of 17% and in sync with our estimate of $9.46 billion. The company projects EPS of $11.74-$11.94 and estimates an effective tax rate of 30% for fiscal 2023. It expects the operating margin for fiscal 2023 to increase 30-50 bps from that reported last year.

Management expects fiscal second-quarter inventory growth of 20% and anticipates inventory growth in line with sales growth in the second half of 2023. lululemon expects capital expenditure of $660-$680 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, the company estimates net revenues of $12.5 billion by 2026, implying significant growth from the 2021 reported figure of $6.25 billion.

Stocks to Consider

Some better-ranked companies are Bluegreen Vacations BVH, Royal Caribbean RCL and Crocs CROX.

Bluegreen Vacations sports a Zacks Rank #1 (Strong Buy) at present. BVH has a trailing four-quarter earnings surprise of 24.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BVH’s 2023 sales and EPS indicates a rise of 3.6% and 17.6%, respectively, from the year-ago reported levels.  

Royal Caribbean sports a Zacks Rank #1 at present. RCL has a trailing four-quarter earnings surprise of 26.4%, on average.

The Zacks Consensus Estimate for RCL’s 2023 sales and EPS indicates increases 47.9% and 158.3%, respectively, from the year-ago period’s reported levels.

Crocs, which offers casual lifestyle footwear and accessories, presently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 15%.

The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings suggests growth of 13.1% and 2.8% from the year-ago period’s reported figure. CROX has a trailing four-quarter earnings surprise of 21.8%, on average.

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Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

lululemon athletica inc. (LULU) : Free Stock Analysis Report

Crocs, Inc. (CROX) : Free Stock Analysis Report

Bluegreen Vacations Holding Corporation (BVH) : Free Stock Analysis Report

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