Lululemon Athletica reported mixed Q2 2024 results, with strong international growth offset by challenges in the U.S. women’s business.
Summary
Lululemon’s Q2 2024 performance showed total revenue increasing 7% (8% in constant currency) to $2.4 billion, with earnings per share rising 18% to $3.15. International markets, particularly China, demonstrated robust growth, while the U.S. market faced headwinds. CEO Calvin McDonald stated:
“lululemon remains a strong and healthy brand, and we have shown our ability to responsibly manage the business while seizing the many growth opportunities in front of us.”
Main Themes
- Guidance: Full-year 2024 revenue guidance revised to $10.375-$10.475 billion, representing 8-9% growth
- Competition: Focus on product innovation and newness to maintain competitive edge
- Consumer Demand: Strong international demand, particularly in China; softness in U.S. women’s business
- New Product Announcements: Upcoming launches in training category and expansion of core franchises
- Economic Outlook: Cautious approach to Q4 due to shorter holiday shopping season and U.S. election
Insights
Lululemon identified a significant factor impacting the U.S. women’s business: reduced newness in core and seasonal styles. This led to lower conversion rates, particularly in bottoms and online channels. The company is implementing fast-track design capabilities to address this issue and expects to return to historical levels of newness by Spring 2025.
Market Opportunity
Lululemon continues to see substantial growth potential in international markets, particularly in China. The company remains on track to quadruple international revenue from 2021 levels by the end of 2026. In China, Lululemon’s localized approach and unique positioning in wellness are driving strong performance across Tier 1, 2, and 3 cities.
Customer Behaviors
The company observed that existing customers, particularly in the U.S. women’s segment, were visiting stores and e-commerce sites but not converting at expected rates due to a lack of newness in the product assortment. Traffic remained positive across all channels, indicating continued brand strength and customer interest.
Capex
- Capital expenditures for Q2: $145 million
- Full-year 2024 capital expenditures expected to be $670-$690 million
- Investments focused on distribution center projects, store expansions, and technology infrastructure
Industry Insights
Lululemon’s challenges in the U.S. women’s business highlight the importance of continuous product innovation and newness in the athletic apparel industry. The company’s success in international markets, particularly China, suggests significant growth potential for athletic wear brands that can effectively localize their offerings and tap into wellness trends.
Key Metrics
Financial Metrics
- Q2 Revenue: $2.4 billion (+7% YoY)
- Earnings per share: $3.15 (+18% YoY)
- Gross margin: 59.6% (+80 basis points YoY)
- Operating margin: 22.8% (+110 basis points YoY)
KPIs
- Total comparable sales: +3% (constant currency)
- Store sales: +11% YoY
- Digital sales: +2% YoY
- International revenue: +29% YoY (+31% constant currency)
- China mainland revenue: +34% YoY (+37% constant currency)
“We remain on track to quadruple international revenue from 2021 levels by the end of 2026.” – Calvin McDonald, CEO
Competitive Differentiators
- Strong international growth, particularly in China
- Robust men’s business performance (+11% YoY)
- Innovative product pipeline, including new performance fabrics
- Localized approach to brand building and community engagement
- Successful accessories business with growth potential
Key Risks
- Continued softness in U.S. women’s business
- Potential impact of shorter holiday shopping season and U.S. election on Q4 performance
- Execution risks in addressing product newness issues
- Macroeconomic uncertainties in key markets
Analyst Q&A Focus Areas
- Revenue growth algorithm for North America post-recovery
- Timeline for addressing product newness issues
- Inventory management and markdown expectations
- Sustainability of growth rates in China
- Performance of core products and accessories
Lululemon Summary:
Lululemon faces near-term challenges in its U.S. women’s business but remains confident in its long-term growth strategy. The company’s focus on addressing product newness issues, coupled with strong international performance and a robust men’s business, positions it for potential recovery. Investors should watch for improvements in U.S. women’s conversion rates, the success of upcoming product launches, and continued international expansion, particularly in China.
