apparel and retail

Consumers Still Loving Lululemon, Driving Share Gains

A weaker economy may have some consumers cutting back on apparel, but not Lululemon fans. The company says revenue in its fiscal third quarter jumped 28% to $1.9 billion, with men's apparel sales up 28%, women's up 23% and accessories up 52%.

In a call with investors, Calvin McDonald, the company's chief executive officer, credited Lululemon's direct-to-consumer business model as a key part of its ongoing success.

"Our ability to connect directly with guests in real time and across both our physical and digital channels gives us a number of ways to engage beyond purchase transactions," he said. Those include restarting local 10K races again after a pandemic hiatus, and global activations for World Mental Health Day.

D2C channels contribute 41% of its revenues.

On Black Friday, the company achieved record sales and traffic and continued building on its market share. "While the adult active apparel industry decreased its U.S. revenue by 4%," McDonald said, "Lululemon gained 1.5 points of market share in the U.S. over this time, the most of any brand, according to the NPD Group's Consumer Tracking Service."



Lululemon's net income rose to $352.8 million, up from $258 million in the year-ago period. For the full fiscal year, the Vancouver-based company expects sales from $7.94 billion to $7.99 billion, representing a three-year compound annual growth rate of approximately 26%.

"We continue to believe Lululemon is one of the companies in our coverage best positioned to sustain healthy sales and earnings growth in the current environment," writes Mark Altschwager, an analyst who covers the company for Baird.

With its relatively affluent consumer base, Lululemon "is executing exceptionally well; product innovation is compelling, geographic expansion is on track, and discounts are controlled."

In beating estimates, Lululemon keeps "shaking off concerns over slowing consumer spending," writes David Swartz, an analyst who covers Lululemon for Morningstar.

"We have observed that apparel brands and retailers that appeal to higher-income shoppers, such as Lululemon, have largely been able to navigate the challenging conditions."

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