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Lululemon momentum continues with strong Q2; raises outlook

Lululemon operated 600 stores at the end of the second quarter.

Lululemon Athletica Inc. reported another winning quarter as consumers continued to seek out its pricey activewear and accessories.

“The momentum in our business continued in the second quarter, fueled by strong guest response to our product innovations, community activations, and omni experience,” stated CEO Calvin McDonald.

Lululemon has been expanding into new categories, including footwear. It's also looking at growth in some other sports categories, and most recently expanded into golf and tennis apparel and hiking gear. It also has introducted hijabs designed to be worn during exercise.

While other retailers are feeling the impact of  pullbacks in spending from inflation-weary consumers,  Lululemon customers continue to spend. On the company’s earnings call with analysts, McDonald said the retailer is “not seeing any variation in our cohort’s behavior.” He also said the company has not increased its promotional activity and has no plans to do so.

Also on the call, executives said store traffic more than 30% during the quarter.  Online traffic was up more than 40%.

Lululemon continues to open stores. It opened 29 locations during the quarter, for a total of 600 stores.

Lululemon earned $290 million, or $2.26 a share, in the quarter ended July 31, compared with $208 million, or $1.59 a share, in year-ago quarter. Adjusted earnings came to $2.20 per share.

Net sales jumped 29% to $1.9 billion, with a 28% increase in North America. Total comparable sales increased 23%. Comp store sales increased 16%.

Direct-to-consumer net revenue increased 30%. It represented 42% of total net revenue

“I would like to express my gratitude to our teams around the world for their continued dedication and enthusiasm for our brand, which enabled us to generate this elevated level of performance,” McDonald stated.

The company is maintaining its long-term outlook to double net revenue to $12.5 billion from from 2021 to 2026, part of its “Power of Three x2”  strategy.

“As we look ahead, we're excited about our ability to successfully deliver against our Power of Three ×2 growth plan and create ongoing value for all our stakeholders,” McDonald stated.

For 2022, Lululemon now expects net revenue between $7.86 billion and $7.94 billion, up for its prior forecast of $7.61 billion to $7.71 billion, and adjusted EPS between $9.75 and $9.90,  up from $9.35 to $9.50 per share.

It expects third-quarter revenue between $1.780 billion and $1.805 billion, which would be a three-year compound annual growth rate of about 25%, the company said. Earnings for the quarter are expected  to range from $1.90 to $1.95. 

“Despite the challenges around us in the macro-environment, guest traffic in our stores and on our e-commerce sites remains robust, which speaks to the strength of our multi-dimensional operating model,” stated Meghan Frank, CFO.

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