To The Moon

$lululemon athletica (LULU)$, one of the worst-performing components of the $S&P 500 (.SPX)$ index this year, has rallied 4% after reporting Q2 results.Although it is not worth mentioning compared to its performance this year, but it is also a microcosm of the overall consumer sector.

Performance

• Total Revenue: $2.4 billion, up 7% year-over-year, and up 8% on a currency-neutral basis.

• Earnings per share: Adjusted earnings per share of $3.15, up 18 percent year-over-year.

• Gross Margin: Gross margin was 59.6%, up from 58.8% in the same period last year, primarily due to lower product costs and fewer discounts.

• Performance by business category:

  • Women's apparel revenue growth of 6%

  • Menswear revenue up 11 percent

  • Accessories revenue up 7%

• Regionally

• Americas: revenue grew 1%, but comparable sales declined 3%.

• Mainland China: revenue increased 34 percent and comparable sales increased 23 percent.

• Other regions: Revenue growth of 24%, comparable sales growth of 19%.

Investment highlights

1. US market performance.

Overall sales slowed down, especially for women's products.The CEO noted that the brand remained strong in the U.S. market, but sales of women's products fell short of expectations, mainly due to a lack of product line updates, which resulted in fewer choices for consumers.The company said it has taken steps to improve the frequency of updates for women's products and plans to introduce more new models in the coming months to stimulate sales.

2. Growth potential in international markets

Growth strategies in international markets, particularly in China, continue to shine, with the brand performing well in attracting new customers.Lululemon plans to continue to expand internationally, with the goal of quadrupling international revenue by 2026 to 2021 levels.The company's brand campaigns and community involvement in China are also driving sales growth.

3. Strong growth in men's apparel business

Revenue from the men's apparel business grew 27% year-over-year in Q2, demonstrating strong market demand and brand appeal, with growth significantly higher than the growth rate of the women's apparel business, reflecting the fast-growing potential of the men's apparel market.Lululemon's men's apparel products are targeted at middle-class male consumers between the ages of 25 and 34.

In terms of plans for product innovation, the Company is increasing its investment in new products, particularly in men's apparel and accessories.

4. Inventory Management and Gross Margin

Q2 inventory level decreased by 14%, in line with expectations, while the Company successfully controlled the discount rate.The Company will continue to optimize inventory management and ensure that product supply matches market demand in order to maintain good gross margins.

5. Outlook and Guidance

Despite some challenges, the company remains optimistic about the future and expects revenue growth to be in the range of 6% to 7% for the third quarter and full year.The company's guidance is conservative, reflecting a more cautious consumer environment, and it expects Q3 EPS to be in the range of $2.68 to $2.73, below market expectations of $2.73, and revenue to be in the range of $2.34 billion to $2.365 billion, compared to market expectations of $2.41 billion.

For fiscal 2025, the company lowered its revenue guidance to $10.375 billion to $10.475 billion from an initial $10.7 billion to $10.8 billion, below the widely expected $10.62 billion.Earnings guidance was lowered to $13.95 to $14.15 per share (up from $14 to $14.20 per share in the previous quarter) from the previous $14.27 to $14.47 per share, which was comparable to the widely expected $14.01 per share.

Overall, Lululemon performed well in 2024Q2 and despite some challenges, management is confident in its future growth potential and market strategy.The Company has taken steps to address analyst concerns and is actively driving product innovation and market expansion.

Management is confident that it will achieve its long-term growth objectives, particularly through its strategy of improving its women's product line and strengthening its international markets.