Investors who’ve soured on Lululemon (LULU:NASDAQ) of late were left chasing the stock higher after third quarter results beat estimates and the athleisure specialist raised full-year guidance, sending the shares up 9.2% to $344.8 in after-hours trading on Wall Street.

The Canadian company has seen sales growth slow in the US amid intensifying competition in the athleisure patch, which has weighed on the share price year-to-date, while a recent botched leggings launch provided extra fodder for the bears.

However, bulls believe Lululemon still has a significant runway for growth and have seemingly been vindicated after the Vancouver-headquartered company reported robust international sales growth, delivered in-line guidance for the Christmas selling season and upped its share buyback programme by $1 billion.

SHORTS SQUEEZED

Until this year Lululemon, which sells clothing and footwear for yoga, running and training, was a stock market darling, admired for its record of beating Wall Street estimates, but the stock has de-rated in 2024 on concerns over a slowdown in North America and with fresher brands including Vuori and Alo eating into its market share.

Results (5 December) for the third quarter to 27 October were well-received, showing a 9% hike in revenue to $2.4 billion and earnings per share of $2.87, exceeding the $2.36 billion and $2.69 analysts were looking for respectively.

While Lululemon’s Americas comparable sales decreased by 2%, the company delivered a 25% surge in International comparable sales and investors also applauded upticks in both gross and operating margins.

For the critical fourth quarter including Christmas, Lululemon now expects revenue to be in the $3.48 billion to $3.51 billion range, representing year-on-year growth of 8% to 10%.

And for the full year, Lululemon tightened its revenue guidance range and raised it a smidge.

2024 revenue is now forecast to come in between $10.45 billion and $10.49 billion versus previous guidance of between $10.38 billion and $10.48 billion, while earnings per share is expected to be in the $14.08 to $14.16 range, ahead of the $13.97 analysts had been anticipating.

WHAT DID THE CEO SAY?

CEO Calvin McDonald insisted the group’s third quarter performance showed ‘the enduring strength of Lululemon globally, as we saw continued momentum across our international markets and in Canada. Looking to the future, we are pleased with the start to our holiday season, and we remain focused on accelerating our US business and growing our brand awareness around the world.’

Dan Coatsworth, investment analyst at AJ Bell, said: ‘Lululemon’s product range spans everything from yoga pants and mats to leggings, shoes, hoodies, tanks tops and belt bags, and while historically the core demographic has been women, its men’s line is growing. But having the right sizes in stock has been an issue.

‘The company is now back to raising guidance, although nagging worries about North American demand won’t have been helped by a dip in sales growth for this region.’

Coatsworth continued: ‘Encouragingly, the start to the crucial holiday trading season has made a decent start as the company has revamped its offering.

‘Margins also expanded as the company continues to push its ambitious “Power of Three x2” strategy and it is seeing opportunities in Asia where there is increasing demand for high-end yoga apparel.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.

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