Lululemon exceeded Q3 2024 expectations with 9% revenue growth, driven by strong international performance, strategic product innovation, and expansion plans, while focusing on restoring seasonal newness and enhancing brand awareness.
Key Highlights
- Revenue Growth: Total revenue increased by 9%, driven by:
- China Mainland: +39% revenue growth (36% constant currency).
- Rest of World: +27% revenue growth (23% constant currency).
- Americas: +2% growth, reflecting stable performance in the U.S. and strength in Canada.
- Profitability: Adjusted operating margin improved by 70 basis points to 20.5%, and adjusted EPS rose 13% to $2.87.
- Share Repurchase Program: Authorized an additional $1 billion, with $1.4 billion repurchased year-to-date.
Operational Insights
North America:
- U.S. Market: Revenue was flat but aligned with expectations, with improvements underway to boost product assortments and seasonal newness by Q1 2025.
- Canada: Strong performance, with revenue increasing 9%.
- Membership Growth: Expanded to 24 million members, offering exclusive perks and enhancing customer retention.
- Brand Awareness: Unaided brand awareness in the U.S. remains low at 36%, signaling growth opportunities.
International Markets:
- China Mainland:
- Revenue surged 39% (36% constant currency), with strong results from events like the World Mental Health Day activation.
- Significant focus on aligning with the “Healthy China 2030” initiative to build brand resonance.
- Rest of World (APAC & EMEA):
- Store optimizations in Australia, Berlin, and Oslo delivered enhanced customer experiences and revenue growth.
- Expansion plans include Italy, Denmark, Belgium, Turkey, and the Czech Republic in 2025.
Product Insights
- Category Growth:
- Men’s: +9%.
- Women’s and Accessories: Both +8%.
- Seasonal Newness:
- High-performing products include updated Define jackets, Align Shine collections, and tennis apparel.
- Strong guest response to seasonal activations during the U.S. Open and holiday campaigns.
- Strategic Collaborations:
- Partnerships with Disney and NHL via Fanatics expanded product reach and attracted new customer segments.
Financial Details
- Revenue: $2.4 billion in Q3, with digital sales growing 4% to contribute 39% of total revenue.
- Gross Margin: Increased to 58.5%, driven by improved inventory management, higher initial markup (IMU), and lower inventory provision expenses.
- Inventory Management: Inventory grew by 8%, below prior guidance, reflecting prudent controls.
- Q4 and FY 2024 Guidance:
- Q4 Revenue: Expected between $3.475 billion to $3.51 billion (+8-10%).
- FY 2024 Revenue: Projected at $10.45 billion to $10.49 billion (+9% year-over-year).
- Operating margin expected to decline 10-20 basis points due to strategic investments.
Strategic Focus Areas
Product Innovation and Newness
- Restoring seasonal newness to historical levels by Q1 2025 is a key focus. This includes:
- Expanding core franchises with updated colors, prints, and patterns.
- Introducing consistent play category collections like tennis and golf apparel.
- Leveraging successful launches such as Define jackets and Align Shine collections.
Global Expansion
- Significant international growth potential:
- Planned store openings in Italy and franchise expansion into Denmark, Belgium, Turkey, and the Czech Republic.
- Continued strong performance in established markets like China Mainland and APAC regions.
Marketing and Brand Awareness
- Marketing spend increased to 5.5% of sales, with a focus on:
- Top-of-funnel initiatives to attract new customers.
- Community events and ambassador relationships to boost engagement.
- Driving unaided brand awareness globally.
Digital and Membership Growth
- Digital sales growth of 4%, with omnichannel enhancements improving customer experiences.
- Membership program, now at 24 million members, plays a critical role in retention and repeat purchases.
Challenges and Opportunities
Challenges:
- Flat U.S. Revenue: Reflects limited seasonal newness in 2024 but aligns with plans to recover by early 2025.
- Macroeconomic Uncertainty: Tariff impacts and economic volatility could affect costs and margins.
Opportunities:
- Revenue Per Guest: Room for growth as product newness increases.
- International Expansion: Significant runway for growth in underpenetrated global markets.
- Premium Market Leadership: Continued focus on differentiated technical products solidifies Lululemon’s position in the athletic wear market.
Looking Ahead to 2025
Lululemon is on track to achieve its Power of Three x2 revenue target of $12.5 billion by 2026, with performance ahead of schedule. Key priorities for 2025 include scaling product innovation, expanding in new markets, and continuing to build on its digital and membership growth strategies.
The company’s loyal customer base, differentiated technical products, and strategic focus on global markets position it well for long-term success.
