Shares of Lululemon (LULU) rose more than 10% in after-hours trading as the company boosted its full-year earnings outlook and increased its stock buyback program by $1 billion.
The company said full-year earnings per share are now between $14.27 and $14.47, compared to a previous range of $14 to $14.20. It maintained its previously given full-year revenue forecast, ranging from $10.7 billion to $10.8 billion.
The report came as investor concerns mounted over the company’s slowing revenue growth amid growing competition in the athleisure space from newer brands like Alo and Vuori. Before the earnings release, Lululemon shares were down about 40% through the start of 2024, making it one of the worst-performing stocks in the S&P 500 (^GSPC) this year.
“It’s a bit of a relief rally that you’re seeing in the market,” Bernstein senior analyst Aneesha Sherman told Yahoo Finance after Lululemon’s release.
While the company has benefited from soaring consumer demand for casual wear during the pandemic, sales growth has slowed in recent quarters. In the fourth quarter, sales grew by 16% compared to the previous year, compared to 19% in the third quarter. In its most recent quarter, Lululemon’s revenue rose 10% from the year before.
In May, Lululemon announced that its Chief Product Officer, Sun Choe, would be leaving the company, causing its shares to plummet 7% on the day the news broke. The departure fueled arguments for bears like Jefferies analyst Randal Konik, who said the company’s product lineup is “falling flat.”
In the first quarter, Lululemon’s revenue of $2.21 billion came in just above Wall Street estimates of $2.20 billion. Meanwhile, earnings per share of $2.54 beat Wall Street estimates of $2.39.
Comparable sales in North America were flat in the first quarter, which Sherman said was largely expected but remains a concern for investors going forward.
“The question is can they offset that with international money, and in this quarter they did that,” Sherman said.
Lululemon CEO Calvin McDonald said the company had a “missed opportunity” in its women’s clothing lines in the US. A narrow color palette in leggings in particular contributed to slowing sales growth, McDonald said. Conversely, McDonald noted that male consumers have responded well to new launches in categories such as golf and training.
“Absolutely nothing has changed in terms of the growth potential of this brand, not only internationally, in all markets, but also in the US,” McDonald said.
He added: “All of this is within our control. All of this is what the teams are chasing, and we expect a lot of that to be addressed in the second half of this year.”
Analysts like Konik are still skeptical about whether sales outside the US can continue to support earnings growth going forward.
“The bottom line is that U.S. RPMs continue to decline and market share is being lost to Alo and Vuori,” Konik wrote in a research note after the release. “Equities gains are unlikely to sustain in the after-hours as the future looks tepid, and we believe margins will not be sustained as momentum fades in the US.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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