EPS of $3.15 increased by 17.1% from previous year
Gross margin of 59.6%
Net income of 392.92M
""As we’ve analyzed our women’s business... it became clear to us that this reduced newness... has impacted conversion rates given the fewer new options available to our female guests." - Calvin McDonald" - Calvin McDonald
In Q2 2024, Lululemon Athletica Inc (LULU) reported a revenue increase of 7% to $2.37 billion, reflecting resilience despite facing challenges, particularly in the women's segment. Key growth drivers included an 11% increase in men’s apparel sales and 6% in women’s. Net income grew 15% year-over-year, reaching $393 million, translating to an EPS of $3.15, up from $2.68 in the previous year. Despite robust performance, management acknowledged certain missteps in product newness affecting conversion rates in the women's category, which remain a focal point for improvement moving forward. The international segment showed promising growth, particularly in China, which experienced a revenue increase of 34% YoY, thereby underscoring the company’s expansion potential outside North America.
Key Performance Indicators
Revenue
2.37B
QoQ: 7.34% | YoY:7.33%
Gross Profit
1.41B
59.60% margin
QoQ: 10.75% | YoY:8.75%
Operating Income
540.23M
QoQ: 16.96% | YoY:12.72%
Net Income
392.92M
QoQ: 22.25% | YoY:15.02%
EPS
3.15
QoQ: 23.53% | YoY:17.10%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $2.37 billion (7% YoY increase)
**Gross Profit:** $1.41 billion (59.6% margin)
**Operating Income:** $540 million (22.8% margin)
**Net Income:** $393 million (15% YoY increase)
**EPS:** $3.15
Financial Highlights
Financial Summary for Q2 2024:
- Revenue: $2.37 billion (7% YoY increase)
- Gross Profit: $1.41 billion (59.6% margin)
- Operating Income: $540 million (22.8% margin)
- Net Income: $393 million (15% YoY increase)
- EPS: $3.15
- International Revenue: Increased 29% with a standout performance in China at 34% growth. Key Ratios:
- Current Ratio: 2.43
- Debt-to-Equity Ratio: 0.362
- Return on Equity: 9.75%
The sequential improvements in revenue and profitability highlight effective cost management and strategic market positioning despite macroeconomic challenges, particularly related to a shorter holiday shopping season and uncertainty in consumer spending for the remainder of the year.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
2.37B
7.33%
7.34%
Gross Profit
1.41B
8.75%
10.75%
Operating Income
540.23M
12.72%
16.96%
Net Income
392.92M
15.02%
22.25%
EPS
3.15
17.10%
23.53%
Key Financial Ratios
currentRatio
2.43
grossProfitMargin
59.6%
operatingProfitMargin
22.8%
netProfitMargin
16.6%
returnOnAssets
5.83%
returnOnEquity
9.75%
debtEquityRatio
0.36
operatingCashFlowPerShare
$3.55
freeCashFlowPerShare
$2.39
priceToBookRatio
8.01
priceEarningsRatio
20.56
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management Insights:
- Calvin McDonald (CEO) stated, "...we have experienced a slowdown in women's. We have analyzed our women's business... and determined the most significant factor was a product plan that introduced less newness across core and seasonal styles.”
- Meghan Frank (CFO) noted, "...this year with our revenue growth guide at 8% to 9%... we continue to see strength in both gross margin and SG&A."
- The company repurchased $584 million in shares, signaling management's confidence in the brand and commitment to returning capital to investors.
"As we’ve analyzed our women’s business... it became clear to us that this reduced newness... has impacted conversion rates given the fewer new options available to our female guests." - Calvin McDonald
— Calvin McDonald
"...we continue to manage the business prudently while protecting key investments for the long term." - Meghan Frank at Lululemon's earnings call.
— Meghan Frank
Forward Guidance
For Q3 and the full year 2024, management anticipates revenue growth of 6-7%, consistent with the current trends. They expect operating margins to slightly decrease due to fixed cost deleverage, with strategies already implemented to enhance the product newness in the women’s segment. The full year guidance for 2024 has been adjusted, now expecting revenues in the range of $10.375 billion to $10.475 billion, representing an 8-9% growth compared to 2023. Investment in strategic areas, including channel expansion and product innovation, is prioritized to sustain growth momentum.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
LULU Focus
59.60%
22.80%
9.75%
20.56%
AEO
38.60%
7.83%
4.56%
12.58%
ANF
64.90%
15.50%
11.00%
12.72%
URBN
36.50%
10.70%
5.24%
9.12%
FL
27.70%
-0.47%
-0.41%
-52.29%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Given Lululemon’s strong brand equity, healthy financial metrics, and strategic growth initiatives, the company presents a compelling investment case moving forward. While challenges in product offerings and consumer sentiment may temporarily constrain growth, the proactive measures outlined by management, coupled with international expansion, provide a solid foundation for continued value creation. Investors should closely monitor the execution of the women’s product strategy and overall consumer market conditions as key indicators of future performance.
Key Investment Factors
Growth Potential
Lululemon is strategically positioned for growth, particularly internationally, with a goal to quadruple international revenue by the end of 2026, benefiting from strong brand loyalty and ongoing expansion in markets like China.
Profitability Risk
The primary risks include a slowdown in the U.S. women's segment, reliance on product newness to drive sales, and potential impacts from the macroeconomic environment affecting consumer spending.
Financial Position
Lululemon maintains a solid financial position with $1.6 billion in cash and cash equivalents, a current ratio of 2.43, and a low debt-to-equity ratio of 0.362, indicating strong liquidity and manageable leverage.
SWOT Analysis
Strengths
Strong brand recognition and loyalty globally.
Robust international growth, particularly in China.
Innovative product pipeline and marketing strategies.
Weaknesses
Dependence on the women’s segment, which has shown slower growth.
Recent missteps in product newness strategy.
Challenges in maintaining inventory levels for core products.
Opportunities
Expansion into new international markets with significant growth potential.
Increasing engagement with the membership program to drive loyalty and sales.
Improvement in product innovation and responsiveness to consumer preferences.