Net revenues in the period soared by 22% on last year to $883.4m

Net revenues in the period soared by 22% on last year to $883.4m

Canadian yogawear retailer Lululemon Athletica has upped its full-year guidance on the back of a double-digit surge in both earnings and revenue during the second quarter – and says it does not expect the twists and turns of Trump's tariff hikes to have a big impact on the business.

For the three months ended 4 August, net income surged 30.6% to reach $125m from $95.7m a year earlier. Gross margin was 55%, an increase of 20 basis points compared to the second quarter of fiscal 2018.

Net revenues, meanwhile, were up 22% on last year to $883.4m, and on a constant dollar basis were up 23%. Total comparable sales increased by 15%, or by 17% on a constant dollar basis. Comparable store sales were up by 10%, or 11% on a constant dollar basis, while direct to consumer net revenue soared by 30%, or by 31% on a constant dollar basis.

The retailer is working to deliver its 'Power of Three' five-year vision, which aims to drive product innovation, create integrated omnichannel experiences, and expand deeper in key markets around the world – ultimately boosting revenue and earnings growth. Specifically, the growth strategy includes a plan to double men's and digital revenues and to quadruple international revenues. 

"We're pleased with the ongoing strength across our business. We continue to make progress in delivering against our Power of Three growth pillars," says CEO Calvin McDonald.

Tariff impact 

Meanwhile, as many other retailers are working to mitigate the impact of new tariffs introduced on imports into the US, Lululemon says it does not expect the levies to have a big impact to the business.

Speaking to analysts on the retailer's second-quarter earnings call, chief financial officer PJ Guido said Lululemon's direct exposure to China is "relatively small" with about 6% of its finished goods in scope for US tariffs.

That percentage is "down considerably," he added, given how the company has diversified its vendor base. "We've never had more flexibility than we do today in our supply chain. So going forward, we do not expect it to be a big impact to the business."

"In terms of quantifying it, I'll just reiterate that we guided on the last call, we expected a $0.04 to $0.05 impact in the back half of the year, weighted towards Q3. We did incur a $0.01 of that in Q2. We do see an additional $0.04 in the back half but more equally weighted given the delay in the tariffs, but it's a situation we constantly monitor," Guido said." We had airfreight in as a hedge to ensure that we deliver for our guests. But again, this is an issue that we feel is highly manageable for us."

Fiscal 2019 outlook

Looking ahead, for fiscal 2019 Lululemon now expects net revenue to be in the range of $3.8-$3.84bn based on a total comparable sales increase in the low teens on a constant dollar basis. Diluted earnings per share are expected to be in the range of $4.63 to $4.70 for the full year, based on a 27.5% effective tax rate. 

This compares to the guidance provided by the company in June that forecast net revenue to be in the range of $3.73bn-$3.77bn, and diluted earnings per share to be in the range of $4.51 to $4.58.

"Power of Three strategic initiatives...are bearing fruit towards 2023 targets," notes Cowen Research analyst John Kernan.