Lululemon Gains Most Since 2020 on Robust Sales, Higher Guidance

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(Bloomberg) -- Lululemon Athletica Inc. jumped the most in three years after posting a strong start to 2023 and projecting a better-than-expected full-year outlook — a sign of robust demand for the company’s pricey activewear despite emerging consumer weakness.

Earnings and comparable sales surpassed analysts’ average estimate in the company’s first quarter. For the full year, Lululemon now expects revenue to be as high as $9.5 billion, compared with a prior estimate of as much as $9.4 billion. Guidance for the second quarter also came in above analysts’ estimates.

Lululemon shares surged as much as 18% in New York trading on Friday, the most since the onset of Covid-19. The stock had gained 2.5% this year through Thursday’s close, trailing the 32% advance of the Nasdaq 100.

The results point to ongoing strength for the brand, which appears to be sidestepping the softness that has derailed other retailers at the start of the year.

“In contrast to many retailers, Lululemon posted a strong first quarter that should silence most skeptics,” William Blair analyst Sharon Zackfia wrote in a research note.

The company has been working down bloated merchandise stockpiles since last year. It reported that inventory rose 24% from a year ago in the first quarter, an improvement from the 50% year-over-year gain reported last quarter, though still higher than usual. Executives told analysts on an earnings call that they expect inventory levels to dip slightly in the current quarter and then to be relatively in line with sales growth in the second half of 2023.

Gross margin in the quarter was higher than the average analyst estimate. The company said lower air freight and an acceleration in Chinese sales, which jumped 79% from a year earlier, contributed to the performance.

The company plans to open 30 to 35 stores outside of the US this year, most of which will be in China. Lululemon sees continued room for international expansion and expects “balanced and very healthy growth ahead,” Chief Executive Officer Calvin McDonald told analysts.

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Lululemon’s results stand out among other apparel retailers, which largely have reported comparable-sales declines in the first quarter and noted growing economic uncertainty. That experience hasn’t been across the board, however, with brands such as Abercrombie & Fitch and Urban Outfitters-owned Anthropologie also experiencing double-digit comparable sales growth, suggesting that consumers are still willing to spend on higher-priced apparel from popular brands.

--With assistance from Jeannette Neumann and Deirdre Hipwell.

(Updates with premarket share trading in third paragraph.)

©2023 Bloomberg L.P.

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