Lululemon Athletica (LULU 0.77%) stock gained 13.5% in Thursday's after-hours trading session, following the athletic-wear specialist's release of a strong report for the first quarter of fiscal 2023 (which ended April 30). Investors' enthusiasm is attributable to the quarter's results beating Wall Street's consensus estimates for both revenue and earnings, along with management raising its full-year guidance for both the top and bottom lines.
Consumers, in general, have been tightening their spending on apparel and other discretionary products, due to concerns about the economy and, more specifically, high inflation. But Lululemon continues to post fantastic revenue and earnings growth. This is likely a reflection of several factors, including that more affluent people are usually less affected by a challenging macroeconomic environment than their less-affluent counterparts.
Lululemon's key numbers
| Metric | Fiscal Q1 2022 | Fiscal Q1 2023 | Change |
|---|---|---|---|
| Revenue | $1.61 billion | $2.00 billion | 24% |
| GAAP operating income | $260.3 million | $401.4 million | 54% |
| GAAP net income | $190.0 million | $290.4 million | 53% |
| GAAP earnings per share (EPS) | $1.48 | $2.28 | 54% |
| Adjusted EPS | $1.48 | $2.28 | 54% |
Data source: Lululemon. GAAP = generally accepted accounting principles. Fiscal Q1 2023 ended April 30, 2023.
The adjusted EPS entry was included just to make it obvious that there were no one-time items in either the just-reported quarter or the year-ago period. CFO Meghan Frank said in the earnings release:
Our Q1 results were strong as guests responded well to our product offering in all our markets across the globe. A meaningful acceleration in our China sales trend, coupled with lower air freight, contributed to our better than planned financial performance.
Wall Street was looking for EPS of $1.98 on revenue of $1.92 billion. So Lululemon surpassed both expectations. The company also beat its own guidance, which was for EPS of $1.93 to $2 and revenue of $1.89 billion to $1.93 billion.
Revenue surged 27% year over year in constant currency. Revenue growth was driven by a 13% year-over-year increase in company-operated same-store sales and a 16% jump in direct-to-consumer (DTC) revenue. DTC sales accounted for 42% of total sales in the quarter, down from 45% in the year-ago period.
Revenue growth was driven by both regions, with 17% and 60% increases in North America and internationally, respectively. International growth got a big boost from surging sales in China. Lululemon opened seven net new company-operated stores during the quarter, ending the period with 662 stores.
The company generated $45.5 million running its operations, compared with using $243.3 million in the prior-year period. It ended the quarter with $950.6 million in cash and cash equivalents.
Guidance issued for Q2 and raised for full-year fiscal 2023
| Metric | Initial Guidance | Updated Annual Guidance | Wall Street's Consensus Estimate | Annual Growth Implied by Guidance* |
|---|---|---|---|---|
| Fiscal Q2 revenue | $2.14 billion to $2.17 billion | N/A | $2.16 billion | 14% to 16% |
| Fiscal Q2 adjusted EPS | $2.47 to $2.52 | N/A | $2.50 | 12% to 15% |
| Fiscal 2023 revenue | $9.30 billion to $9.41 billion | $9.44 billion to $9.51 billion | $9.37 billion | 16% to 18% |
| Fiscal 2023 adjusted EPS | $11.50 to $11.72 | $11.74 to $11.94 | $11.61 | 17% to 19% |
Data source: Lululemon. *Calculations by author.
In short, Lululemon turned in another terrific quarter.
