Lululemon ups guidance after 'strong' growth in China boosts quarterly sales

Lululemon raised its full-year guidance Thursday after reporting an 18% jump in both sales and profit for its fiscal second quarter, boosted by a 61% revenue spike in China.

The athletic apparel retailer now expects sales to be between $9.51 billion and $9.57 billion for the fiscal year, compared to a previous range of $9.44 billion to $9.51 billion.

Lululemon is expecting profits to be between $12.02 to $12.17 per share for the year, compared to a previous range of $11.74 to $11.94.

For its current quarter, the retailer is forecasting earnings per share of $2.23 to $2.28 and sales of $2.17 billion to $2.19 billion, in line with analysts’ expectations, according to Refinitiv.

Here’s how Lululemon did in its second fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Earnings per share: $2.68 vs. $2.54 expected
• Revenue: $2.21 billion vs. Expected $2.17 billion

The reported net income of the company for the three-month span that ended on July 30 was $341.6million, or 2.68 per share. This compares to $289.5million, or 2.26 per share a year ago.

Sales increased to $2.21billion, an 18% increase from $1.87billion a year ago.

The strong growth in international markets was the main driver of both top and bottom-line beats. Sales jumped 52% outside North America for the retailer, with China leading the way at 61%. That’s up from 30% growth in the region in the prior-year quarter.

Lululemon’s finance chief Meghan Frank said there was little volatility in the region during the quarter. She called the growth “strong” and healthy, even though China’s economy is slowing with retail sales only up 2.5% over last year in July. McDonald stated that the retailer has now opened 107 stores across the country. Of the 35 international stores it plans to open during the current fiscal, McDonald noted that the majority of them will be located in this region.

Sales were up 11% in North America. Meanwhile same-store sales across the global business fell short of expectations: Comparable sales were up 11% in the quarter, compared to an estimate of up 12.1%, according to StreetAccount.

Lululemon has undertaken an ambitious growth plan — its “Power of Three x2” strategy — that calls for sales to double to $12.5 billion by 2026 compared to 2021’s revenue of $6.25 billion. To get there, the retailer has been working to expand its brick-and-mortar footprint and double its men’s and direct-to-consumer revenue.

Sales in the men’s category were up 15% during the quarter, and the retailer opened 10 new stores on a net basis, including its first in Thailand. By the end of the quarter, it had 672 stores globally.

It’s also been working to address a persistent inventory glut, with year-over-year levels steadily coming down. Inventory levels were 14% higher in the second quarter of 2014, at $1.7 billion compared to $1.5 billion a year ago. Frank said that while turnover rates were still slower than in the past, the company was doing well with its currency and inventory levels. Direct to consumer revenue increased by 15%, but was only a small part of Lululemon’s overall channel mix during the quarter. Direct to consumer sales represented 40% of Lululemon’s overall sales, compared to 42% in the year ago period.

Lululemon’s gross margin was largely in line with expectations at 58.8%, compared to the 58.5% analysts had expected, according to StreetAccount.

Read the full earnings release here.