Yoga pants giant lululemon's share price fell sharply due to the unexpected performance of the North American market and the annual guidance, while the Chinese Mainland market continued to soar.
On March 22, Lululemon (Nasdaq: LULU, Lululemon) released its fourth and full year financial reports for the fiscal year 2023 as of January 28, 2024. In the fourth quarter, Lululemon's global net revenue increased by 16% year-on-year to $3.2 billion, higher than market expectations; Comparable sales increased by 12%; The gross profit margin increased by 4.3 percentage points to 59.4%. The operating profit margin increased from 11.3% in the same period last year to 28.5%.
The net revenue for the fiscal year 2023 increased by 19% year-on-year to $9.6 billion; Comparable sales increased by 13%; Net profit increased by 81.4% year-on-year to 1.55 billion US dollars; The gross profit margin increased by 2.9 percentage points to 58.3%; The operating profit margin increased by 5.8 percentage points, reaching 22.2%.
In April 2022, based on the growth momentum of the previous three years and achieving the established revenue target ahead of schedule, lululemon announced the "Power of Three x 2 Growth Plan", requiring the business to double from a net revenue of $6.25 billion in 2021 to $12.5 billion in 2026. According to the financial report, the key to this plan is product innovation, consumer experience, and market expansion. The specific growth strategy includes doubling the revenue of men's clothing and e-commerce, and achieving a fourfold increase in international market revenue.
North American market performance and annual guidance fell below expectations, leading to a sharp drop in stock prices. Plans to expand into the men's clothing and footwear markets
It is reported that Lululemon's business covers more than 25 countries around the world, mainly including the United States, Chinese Mainland, Asia Pacific region (APAC) and Europe and the Middle East (EMEA).
The US market is the dominant market, accounting for about 80% of revenue. In the fourth quarter, revenue in the US market increased by 9%, compared to a 29% increase in the same period last year, with a significant slowdown in growth rate.
CEO Calvin McDonald pointed out during a conference call that consumer behavior in the United States has recently changed, and the industry as a whole is doing the same. Lululemon is responding to the slow start of the domestic market this year. "We believe this is an opportunity to continue attacking and investing for sustained growth. Outside the United States, our business remains strong."
Lululemon has also released new performance guidelines this time. It is expected that the net revenue for the first quarter of fiscal year 2024 will be between $2.175 billion and $2.2 billion, an increase of approximately 9% to 10%, which is lower than market expectations. The diluted earnings per share for the quarter are expected to be between $2.35 and $2.4, lower than market expectations. For the 2024 fiscal year, Lululemon expects net revenue to be between $10.7 billion and $10.8 billion, an increase of approximately 11% to 12%, lower than market expectations. It is expected that diluted earnings per share for this fiscal year will be between $14 and $14.20, lower than market expectations.
Due to weak sales in the North American market and lower than expected performance forecasts for the entire year, lululemon's stock price plummeted nearly 16% on the 22nd to $403.19 per share, marking the largest decline in the company's stock price since March 2020.
Lululemon, which started with high-end women's yoga pants and became an industry leader, faced even more intense competition last year. New entrants such as American yoga clothing brands Alo Yoga and Vuori continue to erode market share, and lululemon also realizes the need to take a different path in the crowded track, planning to expand its footwear category and develop its men's clothing business.
In terms of existing business, in the 2024 fiscal year, the Lululemon women's clothing series accounted for over 60% of net revenue, the men's clothing series accounted for over 20% of net revenue, and other products accounted for 13% of net revenue. The net revenue of the women's clothing product series increased by 17%, the net revenue of the men's clothing product series increased by 15%, and the net revenue of other categories increased by 36%.
The financial report points out that the comprehensive men's clothing series business is one of the key points of the company's strategic growth plan, and the company is continuously innovating and launching new products for consumers. Including introducing new product categories and expanding the variety of accessories
Calvin McDonald also mentioned in the earnings conference call that product innovation will be one of Lululemon's key areas in 2024.
The net revenue of Chinese Mainland market last year increased by nearly 70% year on year, and new stores will be concentrated in this market in the new fiscal year
Lululemon, known as a middle-class standard, is still expanding wildly in the Chinese market.
Although the revenue growth rate of the North American market, which is the top performer, has slowed down, the high growth Chinese market and the remaining international market are continuously expanding, and the proportion of performance is constantly increasing.
According to the financial report, lululemon entered Chinese Mainland in 2014, and its income has increased significantly in recent years. Last year, the proportion of net income increased from 7% to 10%.
Specifically, in the fourth fiscal quarter, the net revenue of business in Chinese Mainland increased by 78% year on year, and the comparable sales increased by 56% year on year; In fiscal year 2023, the net revenue of the Chinese Mainland market increased by 67% year on year, and the comparable sales increased by 39% year on year.
Market revenue situation
Sales revenue by market
The financial report indicates that the significant increase in performance in China is mainly due to the opening or significant expansion of the company's self operated stores since 2022, as well as an increase in net revenue from stores.
Crazy opening of stores and selling men's shoes, yoga pants giants are eyeing the wallets of the "male middle class".
In early January this year, Lululemon opened its first independent men's clothing store in China in Beijing, and it is also its first independent men's clothing store in the Asia Pacific region. In February of this year, lululemon announced the official launch of its first men's footwear collection.
According to the financial report, it is believed that as Lululemon continues to expand its business and establish brand awareness in Chinese Mainland, the market's net income will continue to grow, and will promote the growth of the overall international net income. "We plan to continue to invest in Chinese Mainland, and it is expected that most of the new stores opened by the company in 2024 will be concentrated in the Chinese Mainland market."
By the end of fiscal year 2023, Lululemon had opened 56 new self operated stores to 711, 127 stores in Chinese Mainland, and nearly half of the world's new stores were in Chinese Mainland.
Last year's store situation
Calvin McDonald, CEO of lululemon, attributed the strong performance of the Chinese Mainland market to the localized brand strategy and the continuous and steady pace of store expansion in the financial report conference call. "Our team will continue to maintain this momentum. We are very optimistic about future opportunities and full of expectations."
It should be noted that in terms of procurement and manufacturing, the financial report indicates that lululemon does not own or operate any manufacturing facilities, relies on a limited number of suppliers to provide fabrics and production for products, and has established long-term relationships with them. Lululemon also pointed out in its financial report that due to its reliance on international suppliers, any significant disruption in the supply chain could damage its ability to procure or distribute products.