Lululemon Stretches It's Luck in the U.S. While International Markets Carry the Heavy Load...

Lululemon just dropped its latest earnings, and while the numbers technically beat expectations, let’s not act like this was some “fun coupon” moment. Sure, the yoga-pants juggernaut posted a 9% year-over-year bump in sales to $2.4 billion, and net income shot up 41% to $352 million—which sounds great until you zoom in on the cracks beneath the surface. The US market is sagging while International sales proves to be the only reason this report isn’t a total dumpster fire.

(Source: Giphy) 

In short, like previously mentioned, sales hit $2.4 billion, up 9% from last year, and net income jumped 41% to $352 million. On paper, that sounds great—until you realize their core US business is slipping. Comparable sales in Lululemon’s home turf dropped 2% this quarter, following a 3% dip last quarter. That’s two strikes in a row, and the reasons are painfully obvious. Product launches have been bungled, and customers are leaving empty-handed because stores aren’t stocking the sizes and seasonal shades their loyal fanbase actually wants. When Karen walks into a store ready to drop $128 on an Align legging and walks out with nothing, you’ve got a problem. And that problem has a name: competition.

(Source: CNBC) 

Brands like Alo Yoga and Vuori are eating into Lululemon’s market share with trendier, more dynamic designs that are not only Instagram-friendly but also don’t feel like they’re stuck in 2018. Meanwhile Lululemon’s “Power of Three x2” strategy is starting to feel like a piss poor facade of “we don’t know what we’re doing”. Of course, the company says it’s “fixing” its boring product lineup by spring but all that really means is management is praying their next collection doesn’t flop. 

To its credit though, the company is trying to fix the “newness” issue by ramping up its product innovation pipeline. Chief Brand and Product Activation Officer Nikki Neuburger has been tasked with leading the charge. Spring collections are supposed to bring more excitement, but let’s be real—if they don’t nail this, the US market is going to stay on the struggle bus.

(Source: Giphy) 

But again, while the US is coughing up a lung during this marathon, international markets are sprinting ahead. Revenue outside the Americas surged 33%, with China leading the charge. Lululemon has been doubling down on global expansion, opening new stores and building brand awareness abroad. Turns out, international shoppers, who aren’t drowning in inflation or jaded by overpriced leggings and tank tops that pill after two washes, are buying in hard, making this segment an increasingly critical piece of the company’s growth story. 

What’s more, is that if there’s one area where Lululemon is still crushing it across the board, it’s margins. Gross margins climbed to 58.5%, beating expectations and proving they can still squeeze profits out of even a slowing US market. Inventory levels rose 8%, but nothing alarming, especially as they’ve approved another $1 billion in stock buybacks to cover up their mountain of unsold joggers make investors happy. 

(Source: Benzinga) 

In the end, Lululemon is coasting on international growth and loyal shoppers willing to pay stupid money for stretchy pants. But let’s call it what it is—the US market is floundering, and if they don’t get their act together soon, their reign at the top of the athleisure world is going to slip. The brand that once printed cash is starting to show cracks, and no amount of corporate yoga-speak is going to stretch those away.

For now though, filter all this through a brain-cell and place your bets accordingly especially as the stock is down -20.20% YTD (and surprisingly up *checks notes* +17.04% today). So yeah, do what you will with this information and as always, stay safe and stay frosty, friends! Until next time…

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Stocks.News does not hold positions in companies mentioned in the article.