Lululemon Surges 16% on Q3 Beat: Big Gains in Earnings and International Sales

Key Highlights:

• Revenue Growth: Q3 revenue rose 9% to $2.4 billion, surpassing expectations.
• Earnings Beat: EPS of $2.87 exceeded estimates of $2.75.
• Market Reaction: Shares surged over 16%, reflecting investor confidence.
• Full-Year Guidance Raised: 2024 revenue forecast increased to $10.45-$10.49 billion.
• Challenges Persist: North American same-store sales declined by 2%, offset by a 30% international growth surge.

Lululemon’s Stellar Q3 Performance

Lululemon Athletica Inc. (NASDAQ: LULU) delivered a robust Q3 performance, beating analyst expectations and lifting its full-year guidance. Revenue climbed 9% year-over-year to $2.4 billion, exceeding Wall Street’s estimate of $2.36 billion. Earnings per share jumped to $2.87, up from $2.53 a year ago, reflecting strong operational execution despite challenges in North America.

The company’s gross margins rose by 150 basis points to 58.5%, supported by pricing strategies and cost controls. These results sent Lululemon’s stock soaring over 16% in early Friday trading, marking one of its best days in 2024.

“Our third-quarter results highlight Lululemon’s enduring global strength and momentum across key international markets,” CEO Calvin McDonald said. “We are excited about the holiday season and remain committed to growing our brand worldwide.”

A Tale of Two Markets: North America vs. International

While Lululemon’s global same-store sales grew by 4%, the North American market faced continued headwinds, with same-store sales declining 2% in Q3 following a 3% drop in Q2. This decline underscores the challenges posed by increased competition from emerging brands like Alo Yoga and Vuori, which have gained traction with trendier offerings.

Conversely, international sales were a bright spot, surging 30% on a foreign exchange-neutral basis. This robust growth, driven by strong demand in Canada and Asia, underscores Lululemon’s success in expanding its global footprint.

Holiday Season and Updated 2024 Guidance

Looking ahead, Lululemon provided a cautious yet optimistic Q4 outlook, projecting revenue of $3.48-$3.51 billion and EPS of $5.56-$5.64. While these figures align with analyst expectations, they reflect heightened competition and the critical importance of holiday sales.

For the full year, the retailer raised its revenue guidance to $10.45-$10.49 billion, up from the prior range of $10.38-$10.48 billion. The EPS forecast was also increased to $14.08-$14.16, signaling management’s confidence in sustained momentum.

Stock Buybacks and Financial Health

Lululemon’s financial strength remains a key advantage. The company approved a $1 billion increase in its stock buyback program, bringing the total authorization to $1.8 billion. This move demonstrates Lululemon’s commitment to returning value to shareholders while maintaining a solid balance sheet.

At the end of Q3, the company reported increased cash reserves and an 8% rise in inventory, positioning itself well for the holiday season.

Analyst Sentiment and Stock Forecast

Analysts have responded positively to Lululemon’s Q3 performance, with several raising their price targets. The stock now trades around $400, with some analysts predicting further upside to $440. However, the market faces resistance at key levels, and short-term volatility could see a pullback to $375 before resuming its upward trajectory.

Challenges Ahead: Competition and North America

Despite its strong results, Lululemon faces challenges in maintaining its leadership position. Competition from newer brands, combined with softening North American sales, highlights the need for innovation and strategic marketing. Strengthening its domestic market while capitalizing on international growth will be crucial for sustained success.

A Resilient Brand Poised for Growth

Lululemon’s Q3 results reaffirm its position as a resilient and innovative retailer. With strong international momentum, improved margins, and a robust buyback program, the company is well-positioned for the future. However, addressing domestic challenges and staying ahead of competitors will be key to sustaining growth in 2025 and beyond.

For investors, Lululemon’s blend of global expansion and financial discipline presents a compelling long-term opportunity, even as the brand navigates a competitive retail landscape.