Lululemon Athletica beat Wall Street expectations for first-quarter profit and revenue on Wednesday, as a strong China business helped buffer a slowdown in consumer spending on pricey tank tops and leggings in its key North America market.
Lululemon’s shares, which have declined about 40% this year, rose more than 10% in extended trading after the company also approved a $1 billion increase to its stock repurchase program.
Increased store footprint in China helped improve customer traffic for the brand, countering a slackening demand in the United States from higher cost-of-living pressures.
“China continues to be a major growth engine for Lululemon, as the retailer takes advantage of a relative lack of competition to establish itself as a dominant premium athleisure brand in the market,” said Rachel Wolff, an Emarketer analyst.
Lululemon’s comparable sales increased 6%, a rare single-digit sales rise for the company that has seen double-digit growth over the past two years. Same-store sales in the Americas came in flat compared with last year, while they jumped 26% in China mainland.
The company has also worked to fix recent issues around out-of-stock items in smaller sizes and certain colors, which impacted its U.S. sales during February and March, Citi analyst Paul Lejuez wrote in a client note dated May 29.
The company expects to be in a “more optimal inventory position” in the second half of 2024, CEO Calvin McDonald said on a post-earnings call, adding that Lululemon is addressing “several missed opportunities” in color palette and items such as leggings.
Lululemon’s results bucked a slowdown in consumer spending in North America that has hit higher-end apparel retailers such as Ralph Lauren and Coach parent Tapestry .
A leaner inventory and strong full price selling boosted its gross margin in the quarter, increasing 20 basis points to 57.7% from last year.
The athleisure apparel maker posted quarterly net revenue of $2.21 billion, edging past analysts’ average estimate of $2.19 billion, according to LSEG data. Its profit per share of $2.54 also beat estimates of $2.38.
The company’s inventory at the end of first quarter decreased 15% to $1.3 billion.
It hiked its fiscal 2024 earnings per share forecast to a range of $14.27 to $14.47 from $14.00 to $14.20 and maintained net revenue guidance of between $10.70 billion and $10.80 billion.
