Despite lowering its fourth-quarter earnings guidance on Thursday, Lululemon CEO Calvin McDonald told investors on the company’s earnings call yesterday that this holiday season is off to a strong start.
“Black Friday was the biggest day ever in our history in terms of revenue and traffic driven by our results in both North America and around the world,” McDonald said. “I’m pleased with our results and performance over the extended Thanksgiving weekend and as we start the holiday season.”
Still the Vancouver, British Columbia-based athleisure brand outlined a weak outlook for its upcoming Q4. Lululemon now projects net revenue to be between $2.605 billion and $2.655 billion in the quarter, with diluted earnings per share expected to be between $4.20 and $4.30.
Lululemon reported net revenues of $1.9 billion in Q3 of 2022, up 28% from the same time last year. By region, net revenue increased 26% in North America and increased 41% internationally.
Mainland China was a standout for the company this quarter, with revenues in the region growing nearly 70%, buoyed by strength across merchandise categories (men’s was up 28%, women’s up 23% and accessories grew 52%). Lululemon opened nine stores in mainland China in Q3, bringing its total number of locations to 88. McDonald said on the call that these stores are exceeding expectations, especially in markets not affected by COVID restraints. “We remain very excited about the potential and the role that will play in quadrupling our international business, with mainland China playing a big part of that performance,” McDonald told investors.
As for inventory, McDonald noted that the company has seen an improvement across its supply chain after admitting Lululemon was “too lean” last year. The athletic company ended Q3 with inventory levels up 85% on a one-year basis, with units up 38% on a three-year basis. “We remain comfortable with both the quality and quantity of our inventory,” the CEO said. “We made the strategic decision to build inventories this year, which enabled the strong top-line growth we have delivered.”
As for what’s in stock, McDonald noted that the brand’s core styles account for approximately 45% of its total inventory — and these items carry limited seasonal markdown risk. “We are well positioned to be in stock throughout the holiday season,” he added.
Turning to footwear, Lululemon unveiled its fourth women’s sneaker style in the third quarter, the Strongfeel. Lululemon entered the footwear category in March and was recently named Launch of the Year at the 36th annual FN Achievement Awards.
McDonald told investors on Thursday that footwear still remains a “test-and-learn” category for the company and represents a “small portion” of the growth it anticipates to achieve over the next five years. “That being said, we’re excited about the potential opportunity in this category,” he said. “We’re pleased with the results.”