Lululemon Athletica ((LULU)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Lululemon Athletica’s recent earnings call presented a mixed sentiment, highlighting robust growth in international markets and digital channels, while facing hurdles in the U.S. market, increased costs, and a dip in gross margin. The company emphasized its commitment to product innovation and operational efficiency as key drivers for future growth.
International Revenue Growth
Lululemon reported a significant increase in international revenue, with a 33% rise. Notably, China Mainland saw a remarkable 46% growth, while the Rest of the World experienced a 19% increase in constant currency. This underscores the company’s successful expansion strategy outside the U.S.
Digital Channel Performance
The digital segment of Lululemon’s business showed impressive growth, with digital revenue climbing 13% and contributing $1.1 billion, or 42% of the total revenue. This highlights the company’s strong digital presence and its importance in the overall revenue mix.
Strong Cash Position
Lululemon maintains a robust financial position, with a balance sheet boasting $1 billion in cash and no debt. This strong cash position provides the company with flexibility to invest in growth opportunities and navigate market challenges.
Product Innovation and Newness
The company’s focus on product innovation is evident with the introduction of new styles such as Milemaker, Shake It Out, Tumbled Fleece, and Scuba Waffle. These new offerings demonstrate Lululemon’s commitment to refreshing its product line and attracting customers.
Revenue Decline in Americas
In contrast to its international success, Lululemon faced a 2% revenue decline in the Americas, with the U.S. market down by 3% and Canada remaining flat. This highlights the challenges the company faces in its home market.
Gross Margin Decrease
The earnings call revealed a decrease in gross margin by 290 basis points, attributed to tariff impacts and higher markdowns. This decline poses a challenge to the company’s profitability.
Increased SG&A Expenses
Lululemon’s SG&A expenses rose to 38.5% of net revenue, up from 38% last year, indicating a deleverage. This increase reflects the company’s investments in growth and operational costs.
Outlook for Q4 Revenue Decline
The company expects a revenue decline of 1% to 3% for the fourth quarter compared to the previous year, reflecting ongoing challenges in the U.S. market.
Forward-Looking Guidance
Looking ahead, Lululemon provided guidance for the fourth quarter and full year 2025. The company anticipates fiscal year 2025 net revenue to range between $10.96 billion and $11.05 billion, marking a 4% increase from the previous year. While the U.S. market is expected to remain slightly negative, China Mainland is projected to achieve significant growth. The company plans to open approximately 46 new stores, focusing on international markets, particularly China, and aims to manage inventory strategically to mitigate markdown risks.
In summary, Lululemon’s earnings call painted a picture of mixed performance, with strong international and digital growth countered by challenges in the U.S. market and increased costs. The company’s focus on innovation and strategic expansion, particularly in China, positions it for future growth, despite the current hurdles.