Despite a challenging macroeconomic environment, Lululemon, often dubbed the "middle-class harvester," has seen a counter-trend growth. In the second quarter, both revenue and net profit surged, with a staggering 61% increase in revenue from the Chinese market.
On Thursday, Lululemon released its Q2 financial report, reporting revenues of $2.2 billion and a net profit of $341.6 million, both up 18% year-on-year, surpassing analysts' expectations.
Diluted earnings per share stood at $2.68, exceeding the anticipated $2.54 and marking an increase from the previous year's $2.26. The gross margin for the second quarter rose by 230 basis points to 58.8%, slightly above the analyst forecast of 58.5%.
Following the announcement, Lululemon's stock price increased by 1.2% to $381.26, marking a nearly 18% rise since the beginning of the year.
Regional and Product Breakdown
From a regional perspective, international business was the primary driver of sales growth. Sales outside of North America grew by 52%. Notably, revenue from the Chinese market soared by 61%, accounting for 12% of total revenue. This growth rate significantly outpaces the 30% seen in the same period last year.
Lululemon's CEO, Calvin McDonald, highlighted the strong sales performance in both e-commerce and physical stores in China. Currently, Lululemon boasts 107 stores in China, and of the 35 new stores planned globally for this fiscal year, the majority will be in China.
Meanwhile, the North American market showed signs of improvement. Lululemon's sales in North America grew by 11%, attributed to its affluent customer base purchasing more fitness equipment and crossbody bags. Additionally, Lululemon's market share in the U.S. increased by 1.3 percentage points, with both men's and women's wear seeing growth.
In terms of product categories, after "harvesting" the female market, Lululemon has set its sights on middle-class males. Men's wear sales for the quarter increased by 15%, and the retailer opened 10 new stores, including its first in Thailand.
Commenting on the quarterly performance, Calvin McDonald emphasized during the earnings call that the results underscore the company's business strength, and this robust performance is expected to continue into the third quarter.
While some apparel manufacturers, including Nike, have adopted a conservative stance due to a sluggish consumer spending environment, Lululemon anticipates maintaining strong sales momentum throughout the fiscal year and has revised its performance guidance upwards.
Lululemon projects this year's revenue to be between $9.51 billion and $9.57 billion, with an annual profit expected to range from $1.202 billion to $1.217 billion.
Earlier, Lululemon announced an ambitious growth plan dubbed the "Power of Three x2" strategy, aiming to double its sales from $6.25 billion in 2021 to $12.5 billion by 2026. To achieve this goal, the retailer has been diligently expanding its brick-and-mortar presence and aims to double its menswear and direct-to-consumer revenues.
