Dive Brief:
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Lululemon on Thursday said that Q4 net sales rose 15.6% year over year to $3.2 billion, with comps up 12%.
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By region, Americas net revenue rose 9%, with comps up 7%, and international net revenue rose 54%, with comps up 43%. Inventory ended down 9%, per a company press release.
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Gross margin expanded by 430 basis points to 59.4%. Net income more than quintupled to $669.5 million. The brand ended 2023 with 711 company-operated stores, after opening 25 net new locations in Q4 and 56 for the year.
Dive Insight:
Lululemon enjoyed a strong holiday quarter, capping off a year of 19% revenue growth, with sales reaching $9.6 billion. But sales slowed in North America in the new year, particularly in the U.S., leading the brand to temper its guidance.
“Canada is continuing its strong momentum into quarter one,” CEO Calvin McDonald told analysts on a call Thursday, per a transcript. “And within the U.S. we're navigating what we see as a dynamic retail environment and consumer that's a little bit softer.”
That sent shares down after the brand’s Q4 report, though analysts by and large aren’t worried.
“We believe the company remains highly innovative, and growth in the underpenetrated international region is outstanding,” Wedbush analysts Tom Nikic and Matt Quigley said in emailed comments. “Plus, when the company has had their rare operational hiccups in the past (2H22 inventory glut, early-2017 fashion miss, etc.) they have usually recovered very quickly.”
Bank of America analysts Lorraine Hutchinson and Christopher Nardone noted that the brand is attracting younger customers and that Lululemon’s men’s footwear has been well received so far in North America and China, and said they “expect another year of strong innovation” given its past record of innovative fabric, styles and categories compared to competitors.
“We continue to think [Lululemon’s] robust innovation pipeline will result in outsized market share gains and strong earnings growth,” they also said.
Indeed, the lower guidance could prove to be conservative, several analysts said.
“No doubt the bar was reset today, at least in the nearer term, but we view that bar as reasonable and beatable,” William Blair analyst Sharon Zackfia said in a client note, citing Lululemon’s “healthy overall brand momentum,” including the strongest market share gains in adult active apparel in the last four years globally, and “significant opportunity to grow domestic brand awareness.”
Thanks to the brand’s marketing efforts, unaided awareness (when consumers name it as a known label in its market) has grown from 9% to 14% in China and 25% to 31% in the U.S., and those strategies will continue this year, McDonald said.
There’s much potential, as the brand’s peers enjoy awareness of 80%-plus, according to Zackfia.
However, brick-and-mortar expansion will be slower than William Blair’s previous expectation for 55 net new openings. Lululemon Chief Financial Officer Meghan Frank said the brand expects to open 35 to 40 net new company-operated stores this year, including five to 10 stores in the Americas, with international stores opening primarily in Mainland China.
