Lululemon Athletica Inc. (NASDAQ:LULU) is positioned to achieve growth in both revenue and earnings as it prepares to announce its financial results for the second quarter of fiscal 2023 on August 31, following the close of the market.
Analysts’ projections indicate a promising outlook, with an estimated $2.2 billion in sales for the second quarter, reflecting a notable 16.1% surge compared to the figures reported in the same period of the previous year. Anticipated earnings for the fiscal second quarter stood at $2.53 per share, reflecting a solid 15% increase from the $2.20 reported in the corresponding quarter of the previous year. Over the past month, earnings estimates have experienced a marginal upward adjustment of one cent.
In the most recent quarter, the company exceeded expectations with a 15.7% earnings surprise. Over the past four quarters, Lululemon has consistently outperformed earnings estimates by an average of 9.9%.
Key Observations to Consider
Lululemon’s sustained business momentum is attributed to its products’ positive reception. The company has experienced improved foot traffic in physical stores as consumers returned to in-person shopping, while its strong online performance has also contributed to its success. This favorable trend is projected to have a positive impact on the company’s top-line results for the upcoming quarter.
LULU has strategically embraced both physical retail and online engagement, resulting in enhanced revenue and profit margins. The company has actively invested in enhancing the in-store experience, capitalizing on omnichannel capabilities such as “buy online, pick up in store” (BOPUS) and “ship from store.” Efforts to streamline guest experiences and reduce wait times, combined with ongoing store expansion, are poised to further benefit the company.
The company’s online demand has shown significant improvement, facilitated by its robust e-commerce investments. Initiatives such as curbside pickups, same-day deliveries, and BOPUS have contributed to this growth. The gains from these endeavors are anticipated to be reflected in the financial results for the second quarter of fiscal 2023.
Projections indicate that company-operated stores and the direct-to-consumer channel will both experience year-over-year revenue growth of 15.3% in the fiscal second quarter. Other sales are also expected to rise by 15.7% compared to the previous year.
During the previous earnings call, company management expressed confidence in the continuation of strong business momentum throughout fiscal 2023. For the second quarter of fiscal 2023, LULU expects net revenues in the range of $2.14 billion to $2.17 billion, indicating a 15-16% year-over-year growth. Additionally, the company forecasts earnings per share (EPS) in the range of $2.47 to $2.52 for the fiscal second quarter.
Furthermore, Lululemon has observed improvements in its gross and operating margins due to effective cost management. Factors contributing to this improvement include reduced air freight expenses and favorable shifts in the regional mix. These improvements in gross margin and operating margin are expected to have a positive impact on the company’s financial performance.
Projections suggest that the adjusted gross margin will expand by 210 basis points (bps) year-over-year to reach 58.6% in the fiscal second quarter, mainly due to decreased cost of sales resulting from lower freight expenses. The adjusted operating margin is expected to remain stable at 20.9%, mirroring the previous year’s performance. In terms of actual figures, adjusted operating income is predicted to increase by 15.4% compared to the previous year.
For the second quarter of fiscal 2023, management envisions the gross margin expanding by 200-220 bps. This expansion will be driven by reduced airfreight costs, though partially offset by strategic investments in support of growth initiatives, including supply chain enhancements, distribution centers, and product teams. A slight margin expansion of 10 bps year-over-year is also projected for the operating margin.
However, it’s worth noting that Lululemon has experienced higher inventory levels, which have raised concerns. The company’s inventory grew by 24% at the conclusion of the first quarter of fiscal 2023. Management expects inventory growth to align with sales growth in the latter half of 2023, indicating a slight increase by the conclusion of the fiscal second quarter.
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Author Faith Yakubu 
