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Lululemon Athletica Rides International Growth to Reignite Momentum

Lululemon Athletica (LULU) delivered a robust fiscal third-quarter performance, sending its shares soaring 18% to $407 on Friday—their largest percentage gain since 2008.

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The activewear retailer reported a 9% increase in revenue to $2.4 billion, surpassing Wall Street’s forecast of $2.36 billion. Earnings of $2.87 per share also beat expectations of $2.71.

While sales in the U.S., Lululemon's largest market, rose modestly by 2%, the standout performer was the company’s international business, which grew by 33%, led by a 24% increase in China on a constant-currency basis. International success was bolstered by direct sales initiatives, including wellness events and product activations in major Chinese cities like Shanghai.

Despite rising competition and soft consumer demand, Lululemon resisted markdowns, maintaining steady year-over-year promotional activity. Gross margins expanded by 150 basis points to 58.5%, reflecting the company’s disciplined approach.

Strategic Adjustments in the U.S. Show Early Promise
In North America, Lululemon is grappling with declining demand for activewear and lingering issues with its product assortment. Same-store sales in the Americas fell 2% year-over-year, marking a second consecutive quarter of negative growth. However, quarterly revenue stabilization suggests that Lululemon’s turnaround efforts are gaining traction.

The company has reorganized its product team to improve decision-making and responsiveness, a strategy already yielding results. It is addressing past missteps, such as understocked spring collections and a lack of innovation, by expanding color and pattern options in upcoming lines. CEO Calvin McDonald expressed optimism for the holiday season, citing strong traffic trends over the Thanksgiving weekend.

Looking Ahead: International Expansion and Market Confidence
Lululemon raised its full-year guidance, now projecting revenue between $10.45 billion and $10.49 billion and earnings of $14.08 to $14.16 per share. The increased outlook reflects confidence in continued international growth and a gradual recovery in the U.S. market.

Wall Street analysts responded positively. Piper Sandler and Telsey Advisory both raised their price targets, highlighting the company’s agility in protecting margins and adapting to market conditions. However, Jefferies and UBS maintained cautious stances, emphasizing uncertainties surrounding the U.S. business’s recovery and growing competition.

With a $1 billion stock repurchase program announced alongside its earnings, Lululemon is signaling a commitment to long-term shareholder value. While challenges remain in the U.S., the company’s international strength and disciplined strategy position it well for sustained growth.

As the holiday season progresses, Lululemon’s performance will be closely watched for further signs of a turnaround in North America and continued momentum abroad.


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