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Sunday, October 2, 2022

Lululemon Stock Soars on an Earnings Report Grand Slam

Lululemon Athletica (LULU 10.05%) stock surged 9.8% in Thursday’s after-hours trading session after the athletic apparel and shoe retailer released a strong report for its second quarter of fiscal 2022 (which ended July 31).

The market’s positive reaction can be attributed to the earnings report equivalent of professional tennis’s coveted Grand Slam. In this case, the four big wins included both second-quarter revenue and earnings coming in higher than Wall Street had expected, third-quarter guidance exceeding the analyst consensus estimates, and management raising its full-year outlook.

Fittingly, Lululemon launched its first-ever tennis collection this spring. 

Let’s get to the numbers.

Image source: Getty Images.

Lululemon’s key numbers 

Metric Fiscal Q2 2022 Fiscal Q2 2021 Change
Revenue $1.87 billion $1.45 billion 29%
GAAP operating income $401.2 million $291.0 million 38%
GAAP net income $289.5 million $208.1 million 39%
Adjusted net income $281.0 million $215.8 million 30%
GAAP earnings per share (EPS) $2.26 $1.59 42%
Adjusted EPS $2.20 $1.65 33%

Data source: Lululemon. GAAP = generally accepted accounting principles. Fiscal Q2 2022 ended July 31.

Investors should focus on the adjusted numbers, which exclude one-time items.

Revenue growth was driven by a 16% year-over-year increase in company-operated same-store sales (18% in constant currency) and a 30% jump in direct-to-consumer (DTC) revenue (32% in constant currency). DTC sales accounted for 42% of total sales in the quarter, slightly up from 41% in the year-ago period. Lululemon opened 21 net new company-operated stores during the quarter, ending the period with 600 stores. 

Revenue growth was strong across regions, with 28% and 35% increases in North America and internationally, respectively. 

Wall Street was looking for adjusted EPS of $1.86 on revenue of $1.76 billion. So Lululemon easily surpassed both expectations. The company also beat its own guidance, which was for adjusted EPS of $1.82 to $1.87 and revenue of $1.750 billion to $1.775 billion.

Lululemon ended the period with $498.8 million in cash and cash equivalents, down from $1.17 billion in the year-ago quarter. The decline was driven by an approximate $700 million increase in inventory relative to the year-ago period to support what management expects to be strong holiday demand.

Guidance issued for third quarter and raised for full year

Metric Current Guidance Prior Guidance Annual Growth Implied by Current Guidance*
Fiscal Q3 revenue $1.780 billion to $1.805 billion N/A 23% to 25%
Fiscal Q3 adjusted EPS $1.90 to $1.95 N/A 17% to 20%
Fiscal 2022 revenue $7.865 billion to $7.940 billion $7.61 billion to $7.71 billion 26% to 27%
Fiscal 2022 adjusted EPS $9.75 to $9.90** $9.35 to $9.50  25% to 27%

Data source: Lululemon. Fiscal Q3 2022 is the August-to-October period. *Calculations by author. **Excludes the gain on the sale of an administrative office building.

Going into the report, Wall Street had been modeling for Q3 adjusted EPS of $1.78 on revenue of $1.73 billion. So Lululemon’s outlook came in higher than analysts had been expecting on both top and bottom lines.

The quarterly wins keep coming

Lululemon turned in another great quarter. While other retailers continue to blame high inflation and persistent global supply chain woes for their subpar or poor results, Lululemon continues to churn out robust quarterly earnings reports.

Lululemon is one of the best growth stocks in the market.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Lululemon Athletica. The Motley Fool has a disclosure policy.

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