Dive Brief:

• Shares of Lululemon Athletica surged as much as 11.5% in after-hours trading Wednesday after the yoga wear and athleisure apparel company reported third quarter same-store sales increases of 7%, beating the Consensus Metrix analyst expectation for 5.4%.

• Lululemon's net income rose to $68.3 million, or 50 cents per share, from $53.2 million, or 38 cents per share, in the year-ago quarter. Revenue increased to $544.4 million, up 13% from $479.7 million last year: Thomson Reuters I/B/E/S expected earnings of 43 cents a share and revenue of $540 million.

• Lululemon also announced that its board approved a stock repurchase program for up to $100 million of its common shares in the open market at prevailing market prices.

Dive Insight:

Lululemon appears to be finally stepping away from its issues with quality and supply chain concerns to regain some ground in the athleisure apparel category that it almost singlehandedly invented. 

“In our view, Lululemon has done three main things to help engineer growth,” Neil Saunders, CEO of retail research agency and consulting firm Conlumino, said in a note emailed to Retail Dive. “The first of these is product innovation ... Lululemon stumbled on the product front and seemed to lose momentum in terms of new designs and fabrication. However, it is now firmly back ... with new fabrics like Nulu (a lightweight, wicking, quick-drying, compression material) being added to assortments.”

Those performance fabrics, new colors and designs have encouraged Lululemon’s customers to upgrade their clothing and inspired new customers to take notice, and that’s also allowed the retailer to demand even higher prices for its already premium goods, Saunders said.

“The second area is customer service and experience,” he added. “From our data, we believe that this has helped Lululemon push back against some of the negative trends in mall and store traffic over the past few months. Its stores remain relevant and are destinations for its army of loyal fans. The third positive area is fleet expansion,” including more innovative approach like the company's smaller, local formats of 1,000 to 2,000 square feet. Not only does this help to mitigate the costs stores in an era of increasing digital sales, it also allows Lululemon to grow its influence in small but valuable communities, which it could not do with larger footprint shops."

Saunders noted that stiff competition in the space could remain a challenge for Lululemon, and that there’s some evidence that the retailer’s e-commerce efforts are cannibalizing its store sales. But “overall, while the competitive environment remains challenging, Lululemon looks set to end the year firmly on the front foot,” he said.

Lululemon expects Q4 net revenue in the range of $765 million to $785 million, based on total comparable sales in the mid-single digits on a constant dollar basis. Q4 diluted earnings per share are expected to be in the range of $0.96 to $1.01 for the quarter. For the full fiscal 2016, Lululemon now expects net revenue to range between $2.320 billion and $2.340 billion, based on total comparable sales in the mid-single digits on a constant dollar basis. Diluted earnings per share for the full year are expected to range between $2.18 and $2.23 or $2.11 to $2.16, according to a press release.